Defining Key Concepts

1. Residence Status

In a broad sense, "residence status" includes your legal immigration standing: citizenship, Permanent Residency, or Temporary Residence (such as a Study visa, Work visa, or Visitor’s visa). For the organization’s tax status, the residency of the individual members is usually irrelevant.

2. Not-for-Profit Corporation vs. Registered Charity (The Tax Distinction)

Not all non-profits are the same under the Income Tax Act.

• Not-for-Profit Corporations (NPOs): This is the legal name for a corporation established for purposes other than profit. A non-profit corporation is not automatically exempt from income tax. It must meet specific criteria under paragraph 149(1)(l) of the Income Tax Act to be considered a tax-exempt Non-Profit Organization (NPO). If an NPO earns income from commercial activities not directly tied to its non-profit purpose (like property rental or investments), that income may be taxable.

• Registered Charities: These are a distinct class of organizations that have successfully applied to the Canada Revenue Agency (CRA) for registration. They are exempt from income tax and can issue tax receipts for donations, but they are subject to strict spending rules and control requirements.

3. Corporate Independence

A Canadian corporation, whether non-profit or for-profit, is a separate legal entity from the individuals who govern or finance it. The organization itself is considered a "resident of Canada" for tax purposes simply because it was incorporated here (either Federally or Provincially).

Conclusion (Initial): The residence status of the members of the non-profit corporation does not have a direct implication for the organization’s tax status because the organization is legally independent of its members.

2. Maintaining "Direction and Control" (Charities Only)

For a registered charity, having foreign directors or members can complicate one of the most important compliance obligations: maintaining "direction and control" of its resources.

• If a Canadian registered charity sends funds or resources outside of Canada, the CRA requires the organization to demonstrate that it has directed and controlled those resources exclusively for its charitable purposes.

• If a majority of directors are non-residents, and the charity's activities or funding is primarily abroad, the CRA may scrutinize whether the organization's "central management and control" truly resides in Canada and whether it is being operated exclusively for a charitable purpose.

• If the CRA determines that the Canadian organization is simply a "conduit" for a foreign entity, it could lead to the revocation of the charitable status.

3. Administrative Tax Obligation: Non-Resident Withholding Tax (Part XIII)

This is a direct administrative tax responsibility for all Canadian residents (including NPOs) who make certain types of payments to non-residents. The NPO's tax-exempt status does not remove this obligation.

The organization must withhold a percentage of certain income types paid to non-resident individuals or corporations and remit it to the CRA on their behalf. The non-resident's country of residence and the specific type of payment determine the exact rate (often 25% by default, or lower if reduced by a tax treaty).

This applies to payments like:

• Rent paid for Canadian real property.

• Royalties (e.g., intellectual property payments).

• Fees for Services Rendered in Canada (withholding tax is generally 15% in this case, and the non-resident must file a tax return to settle the final tax liability).

If the Non-Profit Corporation fails to withhold and remit this tax, the organization becomes liable for the tax, plus penalties and interest.

Final Answer

The residency status (citizenship or immigration status) of a Non-Profit Corporation's members generally has no direct effect on the organization's tax-exempt status.

However, the residency of the organization's directors and the recipients of its payments creates significant legal and administrative responsibilities that the NPO must meet:

1. Legal Compliance: Ensuring the Board meets any provincial or federal director residency requirements (though requirements are often zero under the CNCA and ONCA).

2. Charity Compliance: If registered as a charity, demonstrating that the organization maintains direction and control of its resources, especially when non-residents are on the board or activities are conducted abroad.

3. Administrative Tax: Meeting the obligation to withhold and remit Canadian tax on certain types of payments made to non-resident individuals or entities.