In April, CRA released a short guidance, CG-025, which sets out the criteria that must be met by an organization seeking to be recognized as a low cost housing corporation for the aged. Such corporations, provided that they obtain and maintain registration with CRA, constitute “qualified donees” under the Income Tax Act (Canada) (the “Act”) that are eligible to issue tax receipts for donations and to receive grants from registered charities.
Changes to the Act in 2012 established a registration regime for qualified donees other than registered charities. Unless an entity is properly registered with CRA, it is not considered a qualified donee even if it meets the criteria for registration. At present, only two low cost housing corporations for the aged are listed as being registered with CRA. A list of such qualified donees is available here.
Criteria for Registration
The new Guidance confirms that in order for a corporation to qualify as a low cost housing corporation for the aged, it must meet the requirements set out in paragraph 149(1)(i) of the Income Tax Act. Paragraph 149(1)(i) provides the following requirements that must be met by such a corporation:
a corporation that 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.
CRA elaborates on its interpretation of these requirements in CG-025. CRA confirms that it will accept anyone 55 years of age or over as being “aged” The requirement that the corporation must be constituted “exclusively” to provide low cost accommodation for the aged means that the corporation must be operated only for this purpose. CRA states that it is not sufficient for a corporation to provide accommodation mainly for the aged, or to include persons who are not aged.
CRA states that “low cost” accommodation includes comfortable but modest rental accommodation, at rates that are low relative to rents generally available for similar accommodations in the same community (other than subsidized or non-profit accommodations). It is acceptable for the corporation to provide related services such as meals, laundry services, home furnishings, medical/nursing care, house-keeping services, resident aides’ services and general assistance with matters of daily living.
The corporation must also ensure that no part of its income is available for the personal benefit of any shareholder, member or proprietor of the corporation. This requirement also applies to registered charities and non-profit organizations, and establishes a prohibition on distributing any income to members. CRA states that it interprets this requirement to mean also that the power to pay dividends out of income or distribute income to the members on dissolution may put a corporation offside this requirement. This issue can be addressed by ensuring that the corporation’s governing documents prohibit such distributions and by reviewing the practices of the corporation to ensure that it complies with this requirement.
The application process for qualified donees (other than registered charities) is less formalized than the process for registered charities. CRA states that an organization wishing to be registered as a low cost housing corporation for the aged must submit a letter to the CRA’s Charities Directorate accompanied by the following supporting documentation:
- the corporation’s identifying information, such as its legal name, mailing address, physical address, phone number(s) and CRA business number;
- the address of the physical location of the corporation’s books and records (a post office box or rural route number is not enough);
- the corporation’s fiscal period-end;
- a complete list of the corporation’s current officials (that is, directors or like officials);
- an explanation of how the corporation 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. The explanation should include a comparison of community rental rates demonstrating that the rents charged by the corporation are lower than the market rates being charged in the community for similar unsubsidized accommodations;
- a statement as to whether, to the best of the applicant’s knowledge, the CRA has at any time previously considered the corporation’s eligibility as a low-cost-housing corporation within the meaning of paragraph 149(1)(i) of the Act. If it has been considered, a copy of the CRA’s determination and any other relevant documentation should be provided;
- a complete copy of the corporation’s governing documents (for example, incorporating documents and any amendments, current bylaws, and operating policies);
- a full description of the corporation’s rental and tenant/resident eligibility criteria. This could include a copy of a sample lease/rental agreement or lease/rental application;
- a description of all the programs and services provided by the corporation and any eligibility criteria, conditions, or fees associated with them;
- a description of any other activities carried on by the corporation, such as any business or fundraising activities;
- a copy of the corporation’s most recent financial statements;
- an explanation of the source of the corporation’s revenues, including funding received; and
- copies of any other relevant documents and agreements supporting the application for registration.
If your corporation meets the requirements for status as a low cost housing corporation, you should consider applying for registration as a qualified donee. It is important to remember that qualified donee status is no longer automatic for qualifying corporations.