Non-Profit Organizations
A non-profit organization ("NPO") is defined in subsection 149(1)(l) of the Income Tax Act (Canada) as a club, society, or association that is not a charity and that is organized and operated solely for social welfare, civic improvement, pleasure or recreation, or any other purpose except profit. The definition also provides that, to be considered an NPO, no part of the income of such an organization may be payable to or otherwise available for the personal benefit of any proprietor, member, or shareholder, unless the proprietor, member, or shareholder is a club, society, or association whose primary purpose and function is the promotion of amateur athletics in Canada.
An organization that meets this definition will be exempt from tax under Part I of the Income Tax Act on all or part of its taxable income.
Member-Funded Societies
A society governed by the Societies Act (British Columbia) may elect to become a member-funded society if it meets certain requirements set out in section 191(1) of the Societies Act. The constitution of a member-funded society must include the following statement (the "Member-Funded Statement"):
This society is a member-funded society. It is funded primarily by its members to carry on activities for the benefit of its members. On its liquidation or dissolution, this society may distribute its money and other property to its members.
Member-Funded Societies: Bylaw Provisions Required for NPO Status
A tax interpretation1 issued by Canada Revenue Agency ("CRA") states inclusion of the Member-Funded Statement in the constitution of a member-funded society may disqualify the society as an NPO as the Member-Funded Statement may make the income of the society payable to or otherwise available for the personal benefit of its members.
CRA states member-funded societies may address potential issues in this regard by including the following provisions in their bylaws:
- a provision which prohibits distributions to members; and
- a provision which provides that, upon dissolution or liquidation of the society, the remainder of its assets must be transferred to an organization with similar objects.
Footnote
1. GST/HST Interpretation 195314 – Member-funded societies
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