Feds launch sneak attack on non-profits in 2014 budget
As non-profit organizations, ONPHA and its members are financially supported by government through subsidies and tax exemptions. This treatment helps us to manage operations, offset capital costs and fulfill mandates that are not otherwise recognized or supported by the private sector. But, since the economic crisis of 2008, governments have told us not to rely on their funds as they threaten cut backs to program spending. As a result, many non-profit organizations have become more entrepreneurial to fund programs and services that have historically been operated with government subsidies.
But wait! Before you create that business with an eye to making your organization more self-reliant, less dependent on government, consider the federal government’s 2014 budget which states an intention to reconsider the tax exemptions upon which you may depend. The feds, it seems, intend to “review whether the income tax exemption for NPOs [non-profit organizations] remains properly targeted and whether sufficient transparency and accountability provisions are in place.” It goes on to state “[c]oncerns have been raised that some organizations claiming the NPO tax exemption may be earning profits that are not incidental to carrying out the organization’s non-profit purposes, making income available for the personal benefit of members or maintaining disproportionately large reserves.” Housing corporations and advocacy groups are specifically cited in the budget as one type of non-profit organization that has emerged since the income tax exemption legislation was first developed in 1917.
In 2012, ONPHA, in cooperation with the Co-operative Housing Federation of Canada (CHF Canada), Canadian Housing Renewal Association, Housing Services Corporation and Association of Municipalities of Ontario raised concerns about tax-related decisions being made by the Canada Revenue Agency (CRA). At that time, the CRA was conducting a fact-finding mission on the housing sector and took exception to tax-exempt housing providers that were earning profits from ancillary activities and investment income from the provincially-legislated capital reserve investment program.
The housing sector’s position can be succinctly summarize by the following line which was included in a letter sent to Jim Flaherty, the federal finance minister, by CHF Canada – “[i]t cannot be enough to identify certain commercial attributes, and find on that basis that these are for-profit businesses; what must be weighted is whether they have as their preponderant purpose the making of a profit. Plainly they do not.”
Predictably, the federal budget fails to cite the source of the government’s concerns and we presume that the pending consultation document will include more details. In the meantime, as part of their business planning, members should consult with their auditor, a tax specialist and legal counsel before undertaking new business activities. We will provide additional details and analysis as information becomes available.