We have commented in previous issues of this Newsletter on the CRA’s interpretation of the requirements for tax exempt status as a non-profit organization (NPO) under paragraph 149(1)(l) of the Income Tax Act.  In a recent technical interpretation, CRA provided further comments regarding different possible uses of vacant caretaker suites by condominium corporations, and how these different uses might affect a corporation’s NPO status.

In order to qualify as tax exempt under paragraph 149(1)(l), an organization must be organized and operated exclusively for any purpose other than profit and no income generated by the entity can be made available for the personal benefit of any member.

Condominium corporations generally qualify as tax exempt as under the ITA, provided that they continue to meet the requirements under paragraph 149(1)(l).  Condominium corporations are incorporated as corporations without share capital, whose members are those individuals that own units in the building.  In addition to the many duties outlined in a condominium corporation’s governing documents and relevant condominium legislation, the condominium corporation has a duty to control, manage and administer the common elements and assets of the corporation.


CRA considered whether a condominium corporation could retain its tax exempt status if a vacant caretaker suite (a unit in a condominium previously occupied by a resident caretaker) was utilized for various purposes.  CRA considered and commented upon the following possible uses of the caretaker suite:

  1. Sale of the caretaker suite at fair market value (FMV);
  2. Rental of the caretaker suite at FMV;
  3. Conversion of the caretaker suite into a guest suite; and
  4. Appropriation of the caretaker suite for other purposes, such as a fitness/health centre – access to which would be granted in exchange for a membership fee.

CRA’s position

  1. Sale of the caretaker suite at FMV

CRA stated that provided the condominium corporation otherwise meets the criteria as set out in paragraph 149(1)(l), it will not necessarily cease to be exempt from tax by selling the suite at FMV if the unit was previously owned and used by it in its exempt operations.  Furthermore, its status will not necessarily be affected if the proceeds of disposition are placed in its reserve fund for future capital repairs and improvements to the condominium property.

  1. Rental of the caretaker suite at FMV

CRA stated, consistent with past statements in this regard, that renting out the suite could put the corporation’s tax exempt status at risk.  CRA stated that the intentional undertaking of a profitable activity will generally place an organization outside of paragraph 149(1)(l), unless incidental to the organization’s not-for-profit objectives such as the management and maintenance of the condominium property and required services.  CRA stated that an arrangement to rent the suite at FMV (or any amount in excess if its costs) would likely disqualify a condominium corporation from tax exemption under the ITA, as it would likely be interpreted as being indicative of a profit purpose.  Furthermore, if the presence of excess profits results in reduced members’ fees, CRA takes the position that the rental income will have been made available for personal benefit to its members, which is further grounds for denying tax exempt status.

  1. Conversion of the caretaker suite into a guest suite

CRA stated that in the event that the guest suite is rented to members at FMV for the sole use of members’ guests, the corporation can potentially maintain its tax exempt status.  Profits from the rental, however, must not be material and no part of the income can be made available to the members directly.  CRA also suggested that if the condominium corporation rents the guest suite to its members at a cost less than FMV, the rental may be viewed by CRA to be a taxable benefit to the members.

  1. Appropriation of the caretaker suite for other purposes, such as a fitness/health centre

CRA addressed the tax implications when a condominium corporation converts a suite into a facility for which user fees are charged. CRA stated that provided that the facility is providing services to the members that are consistent with its not-for-profit objectives, without the intention to make a profit, the condominium corporation will maintain its tax exempt status.  The corporation may lose its tax exemption, however, if it makes the facility available in a manner which permits it to make a profit that is not incidental to activities in furtherance of its not-for-profit objectives.


Condominium corporations will want to take CRA’s comments into account when planning for use of vacant suites.  While some of CRA’s positions may be open to question, condominium corporations should be aware of CRA’s views and the likelihood that CRA may challenge the practices noted above that it considers to be offside paragraph 149(1)(l).

It is worthwhile to note that CRA has recently completed its Non-Profit Organization Risk Identification Project – a research project undertaken to provide insight into the way non-profit organizations operate under the ITA.  CRA is expected to release a report in the coming months that sets out the results of its review of compliance issues under paragraph 149(1)(l).  It will be interesting to see whether CRA addresses any of the issues discussed in this technical interpretation.