Innovative Art Co-op Scores Tax Victory for All Commercial Non-profit Co-ops

Under the leadership of its Co-Chair, Sid Gould, InsideArt
Cooperative has been successful in stating its case to the Canada Revenue
Agency (CRA) that this non-profit cooperative is not subject to the payment of
corporate tax on its net income.

InsideArt was counseled by an accountant specialized in
co-op taxation that it must file a T2 (corporate tax return) as a Canadian
Controlled Private Corporation (CCPC), and would be taxed at the CCPC rate on
their net income. This position was affirmed as one commonly held by many co-op
developers in BC.

After having reviewed available technical and information
bulletins, relevant sections of the federal Income Tax Act, previous Ministerial
decisions, and previous court rulings on this issue, Mr. Gould argued to CRA in
August that InsideArt Cooperative was exempt under section 149(1)(l), outlining
these points:

  1. InsideArt Cooperative was incorporated specifically as a non-profit cooperative.
  2. Members of the cooperative may not, given the non-profit status, receive
    any benefit from any funds in excess of those necessary for the operations of
    the cooperative (profit) and further, are not entitled to any funds or assets
    should the cooperative cease operations and be required to disburse the same.
  3. Although the cooperative engages in commerce, it does so with a specific
    mandate to improve the conditions of its members, most of whom exist on the
    margins of society. Similar rules and precedent exist for exempt organizations
    under section 149 (1) (l) as exist for charities. That is to say the mere
    existence of commercial operations does not automatically deny an organization
    the exemption. In this case, it is the very commercial operations which are so
    necessary to achieve the social benefit for which the cooperative was formed.
  4. The cooperative was started as a community economic development project as
    a method to build capacity of those in the less enabled strata of our society,
    using business skills to enable the marginalized to exist with less reliance on
    the social safety net.

‘Nil’ T2 returns were filed with the letter of argument, along with InsideArt’s
mission and vision statements (pasted to the end of this email). Last week,
Letters of Assessment were issued by CRA agreeing with the ‘nil income tax
owing’ claim.

This, we believe, sets a useful precedent for those
operating non-profit cooperatives which engage in commerce specifically for the
purpose of empowering the marginalized

The Fraser Valley Centre for Social Enterprise continues to
work on CRA issues related specifically to social enterprise operations in Canada.