The destination of profits test (or ‘destination test’ for short) is simply this: if the profits generated by a non-profit are redirected towards the organization to support it or to unleash more impacts based on its core community purposes, then the profits are tax-free.
This allowance already exists in New Zealand. Many in the Canadian non-profit sector believe that the destination test already exists in Canada, and by operating under this belief, they are currently jeopardizing their tax exemption.
In the long run, a Canadian adoption of the destination test would result in a non-profit sector that is:
- Confident and bold with respect to undertaking business activities
- Appropriately resourced
- More skilled (i.e. able to afford wage levels that attract a more skilled labour force)
- Better poised to remedy some of the intractable issues of our time
To access our paper Empowering non-profits to unleash maximum impact: The destination of profits test in Canada, click here.
(Substantially updated March 2014.)