Aug 2023 Charity & NFP Law Update
Subsection 149(1) of the Income Tax Act sets out a list of different entities that are exempt from paying tax on taxable income, including registered charities, non-profit organizations, municipalities in Canada, as well as a municipal or public body performing a function of government in Canada. In CRA View 2019-0822761I7, published December 13, 2022, the CRA was asked whether two incorporated First Nations health organizations would qualify for the exemption from tax listed in paragraph 149(1)(c) of the ITA by virtue of being municipal or public bodies performing a function of government in Canada.
The CRA set out its longstanding view that in order for a corporation to be a public body, it must meet the following requirements:
- both the corporation’s existence and authority must be from a piece of legislation that also assigns the corporation specific duties;
- the federal, provincial or territorial government or the public that the corporation is serving should have some significant control over the actions and operations of the corporation; and
- the corporation should be accountable to either that government or the public.
Further, the CRA cited the case of Lawyers’ Professional Indemnity Company v HMQ (“Lawpro”) which set out the following three-part test for determining whether an organization (in that case, the Law Society of Ontario) was a public body:
- there must be a duty to the public;
- there must be a significant degree of government control; and
- any profit earned must be for the benefit of the public and not for private benefit.
In applying both its longstanding view and the test from Lawpro, the CRA concluded that the First Nations health organization that operated as a board of health (identified only as “Board of Health”) was a public body because it was created under a special provincial statute, governed by a locally elected board of directors, had a duty to the public as the main provider of health and social services in a particular community, and was under a significant degree of government control.
The second of the two First Nations health organizations was a tribal health body (identified only as “Tribal Health”) and was not created by a special statute, but was established to administer a health transfer agreement entered into between a Tribal Council and the Federal Government. Further, its members included members of particular First Nations and its directors were appointed by elected officials of those First Nations. Tribal Health had a duty to provide health care services, and all profits earned were for the public benefit. Finally, Tribal health was under a significant degree of government control. Therefore, it too was found to be a public body, suggesting that there is some flexibility in the CRA’s analysis of a public body, as Tribal Health was not created by a piece of legislation, contrary to the CRA’s longstanding view on the matter.
After determining that the Board of Health and Tribal Health were both public bodies, the CRA considered whether they also performed a function of government in Canada, as required to qualify under the exception listed at 149(1)(c) of the ITA. The Board of Health was funded by the government as an exclusive provider of health, medical and social services on certain reserves – services that would otherwise be provided by the province. Therefore, the CRA found that it was performing a function of government. Similarly, Tribal Health was funded by the government and provided health services such as dental care, Indian residential school support, and teen suicide prevention among others – services that would otherwise be provided by the government. Therefore, Tribal Health was also found to be performing a function of government.
The CRA View provides insight into when certain First Nations organizations will be found to be tax exempt under paragraph 149(1)(c) of the ITA, and suggests that the CRA may not require that each factor from its own longstanding view be met in order for a corporation to be eligible for the exemption. As well, the CRA View provides some clarity as to what performing a function of government may entail – in this case, the provision of health services that would otherwise be provided by a province clearly meets the description of performing a function of government. If an entity qualifies under paragraph 149(1)(c), it may also be eligible to apply for registration with the Minister of National Revenue as a “qualified donee” under subsection 149.1(1) of the ITA, which would allow the entity to issue donation tax receipts and receive gifts from other qualified donees, including registered charities.