The Income Tax Act has special rules relating to corporations that provide low income housing for the aged. While some of these corporations are charities, they can also be tax exempt under a separate section in the ITA. These tax exempt corporations are recognized as qualified donees, and can issue charitable tax receipts and receive funds from registered charities.
The 2011 Federal Budget introduced new rules that require corporations that provide low income housing for the aged to register with the Canada Revenue Agency in order to remain a qualified donee. The CRA recently released a statement on the qualifications for registration and the application process.
In order to be a qualified donee under this section, a corporation must be resident in Canada and be exempt from tax because the corporation “was constituted exclusively for the purpose of providing low-cost housing accommodation for the aged, no part of the income of which was payable to, or was otherwise available for the personal benefit of, any proprietor, member or shareholder thereof.”
The CRA takes the position that this section has four parts:
First, the corporation must show that it is constituted and operated for the purpose of providing low-cost housing accommodation. This means the corporation’s governing documents must show that its purpose is to provide low-cost housing accommodation and the corporation must carry on activities to provide low cost housing.
Second, the corporation must show that the housing accommodation it provides is “low cost”. The CRA takes the position that “low-cost housing accommodation includes comfortable but modest rental accommodation at rent levels which are low relative to rent levels generally available for similar accommodations (other than subsidized or non-profit accommodations) in the same community.” The corporation must show that the cost of the accommodation will be low, not that the accommodation is provided to people of low or modest income.
Third, the corporation must be show the accommodation is exclusively (not primarily) provided for the aged. The CRA accepts that people 55 years of age and over qualify as “aged”. The low-cost housing accommodations for the aged may also include services such as providing meals, laundry services, home furnishings, medical/nursing care, house-keeping services, resident aides’ services, and general assistance with matters of daily living.
Finally, the corporation must show that no part of the income of the corporation was payable to, or was otherwise available for the personal benefit of, any proprietor, member or shareholder of the corporation. This means that the corporation may not distribute income, either directly or indirectly, to, or for the personal benefit of any member or shareholder. The corporation’s governing documents should specifically prohibit such distribution of income, including dividends, on winding-up and on amalgamation.
The CRA is currently in the process of developing an application process. Until then, organizations can apply by submitting a letter to the Charities Directorate with the following information:
- Name, address, business number, tax services office and tax centre servicing the entity.
- A statement indicating whether, to the best of the applicant’s knowledge, the CRA has at any time considered the corporation’s eligibility as a low-cost housing corporation within the meaning of paragraph 149(1)(i) of the Act. If yes, provide a copy of any relevant documentation.
- A full description of the applicant’s purpose and stated objectives.
- A full description of the persons to whom the applicant is authorized to provide its services by virtue of its governing documents.
- An explanation of the type of activities, obligations and responsibilities the applicant is entitled to undertake by virtue of its enabling documents.
- A description of the actual operations of the applicant and the services provided in fulfillment of its stated objectives and activities. This description should include a statement as to the persons to whom the applicant will be providing the low-cost housing accommodation and all services provided by the applicant.
- A full statement as to how the applicant meets the criteria as a low-cost housing corporation; in particular, age of the residents, rent charged, and how this constitutes “low-cost” housing accommodation.
- An explanation of the source of revenues of the applicant, including funding received.
- If relevant, a description of any other activities carried on by the applicant, such as business activities.