Income Tax Act

Marginal note:Tax regarding non-qualified investment

• 189 (1) Where at any particular time in a taxation year a debt (other than a debt in respect of which subsection 80.4(1) applies or would apply but for subsection 80.4(3)) is owing by a taxpayer to a registered charity that is a private foundation and at that time the debt was a non-qualified investment of the foundation, the taxpayer shall pay a tax under this Part for the year equal to the amount, if any, by which

  • (a) the amount that would be payable as interest on that debt for the period in the year during which it was outstanding and was a non-qualified investment of the foundation if the interest were payable at such prescribed rates as are in effect from time to time during the period

  exceeds

  • (b) the amount of interest for the year paid on that debt by the taxpayer not later than 30 days after the end of the year.

• Marginal note:Computation of interest on debt

  (2) For the purpose of paragraph 189(1)(a), where a debt in respect of which subsection 189(1) applies (other than a share or right that is deemed by subsection 189(3) to be a debt) is owing by a taxpayer to a private foundation, interest on that debt for the period referred to in that paragraph shall be computed at the least of

  • (a) such prescribed rates as are in effect from time to time during the period,

  • (b) the rate per annum of interest on that debt that, having regard to all the circumstances (including the terms and conditions of the debt), would have been agreed on, at the time the debt was incurred, had the taxpayer and the foundation been dealing with each other at arm’s length and had the ordinary business of the foundation been the lending of money, and

  • (c) where that debt was incurred before April 22, 1982, a rate per annum equal to 6% plus 2% for each calendar year after 1982 and before the taxation year referred to in subsection 189(1).

• Marginal note:Share deemed to be debt

  (3) For the purpose of subsection 189(1), where a share, or a right to acquire a share, of the capital stock of a corporation held by a private foundation at any particular time during the corporation’s taxation year was at that time a non-qualified investment of the foundation, the share or right shall be deemed to be a debt owing at that time by the corporation to the foundation

  • (a) the amount of which was equal to,

    • (i) in the case of a share or right last acquired before April 22, 1982, the greater of its fair market value on April 21, 1982 and its cost amount to the foundation at the particular time, or

    • (ii) in any other case, its cost amount to the foundation at the particular time,

  • (b) that was outstanding throughout the period for which the share or right was held by the foundation during the year, and

  • (c) in respect of which the amount of interest paid in the year is equal to the total of all amounts each of which is the amount of a dividend received on the share by the foundation in the year,

  and the reference in paragraph 189(1)(a) to “such prescribed rates as are in effect from time to time during the period” shall be read as a reference to “2/3 of such prescribed rates as are in effect from time to time during the period”.

• Marginal note:Computation of interest with respect to a share

  (4) For the purposes of subsection 189(3), where a share or right in respect of which that subsection applies was last acquired before April 22, 1982, the reference therein to “2/3 of such prescribed rates as are in effect from time to time during the period” shall be read as a reference to “the lesser of

  • (a) a rate per annum equal to 4% plus 1% for each 5 calendar years contained in the period commencing after 1982 and ending before the particular time, and

  • (b) a rate per annum equal to 2/3 of such prescribed rates as are in effect from time to time during the year”.

• Marginal note:Share substitution

  (5) For the purpose of subsection 189(3), where a share or right is acquired by a charity in exchange for another share or right in a transaction after April 21, 1982 to which section 51, 85, 85.1, 86 or 87 applies, it shall be deemed to be the same share or right as the one for which it was substituted.

• Marginal note:Taxpayer to file return and pay tax

  (6) Every taxpayer who is liable to pay tax under this Part (except a charity that is liable to pay tax under section 188(1)) for a taxation year shall, on or before the day on or before which the taxpayer is, or would be if tax were payable by the taxpayer under Part I for the year, required to file a return of income or an information return under Part I for the year,

  • (a) file with the Minister a return for the year in prescribed form and containing prescribed information, without notice or demand therefor;

  • (b) estimate in the return the amount of tax payable by the taxpayer under this Part for the year; and

  • (c) pay to the Receiver General the amount of tax payable by the taxpayer under this Part for the year.

• Marginal note:Revoked charity to file returns

  (6.1) Every taxpayer who is liable to pay tax under subsection 188(1.1) for a taxation year shall, on or before the day that is one year from the end of the taxation year, and without notice or demand,

  • (a) file with the Minister

    • (i) a return for the taxation year, in prescribed form and containing prescribed information, and

    • (ii) both an information return and a public information return for the taxation year, each in the form prescribed for the purpose of subsection 149.1(14); and

  • (b) estimate in the return referred to in subparagraph (a)(i) the amount of tax payable by the taxpayer under subsection 188(1.1) for the taxation year; and

  • (c) pay to the Receiver General the amount of tax payable by the taxpayer under subsection 188(1.1) for the taxation year.

• Marginal note:Reduction of revocation tax liability

  (6.2) If the Minister has, during the one-year period beginning immediately after the end of a taxation year of a person, assessed the person in respect of the person’s liability for tax under subsection 188(1.1) for that taxation year, has not after that period reassessed the tax liability of the person, and that liability exceeds $1,000, that liability is, at any particular time, reduced by the total of

  • (a) the amount, if any, by which

    • (i) the total of all amounts, each of which is an expenditure made by the charity, on charitable activities carried on by it, before the particular time and during the period (referred to in this subsection as the “post-assessment period”) that begins immediately after a notice of the latest such assessment was mailed and ends at the end of the one-year period

    exceeds

    • (ii) the income of the charity for the post-assessment period, including gifts received by the charity in that period from any source and any income that would be computed under section 3 if that period were a taxation year, and

  • (b) all amounts, each of which is an amount, in respect of a property transferred by the charity before the particular time and during the post-assessment period to a person that was at the time of the transfer an eligible donee in respect of the charity, equal to the amount, if any, by which the fair market value of the property, when transferred, exceeds the consideration given by the person for the transfer.

• Marginal note:Reduction of liability for penalties

  (6.3) If the Minister has assessed a registered charity in respect of the charity’s liability for penalties under section 188.1 for a taxation year, and that liability exceeds $1,000, that liability is, at any particular time, reduced by the total of all amounts, each of which is an amount, in respect of a property transferred by the charity after the day on which the Minister first assessed that liability and before the particular time to a person that was at the time of the transfer an eligible donee in respect of the charity, equal to the amount, if any, by which the fair market value of the property, when transferred, exceeds the total of

  • (a) the consideration given by the person for the transfer, and

  • (b) the part of the amount in respect of the transfer that has resulted in a reduction of an amount otherwise payable under subsection 188(1.1).

• Marginal note:Minister may assess

  (7) Without limiting the authority of the Minister to revoke the registration of a registered charity, the Minister may also at any time assess a taxpayer in respect of any amount that a taxpayer is liable to pay under this Part.

• Marginal note:Provisions applicable to Part

  (8) Subsections 150(2) and (3), sections 152 and 158, subsection 161(11), sections 162 to 167 and Division J of Part I apply in respect of an amount assessed under this Part and of a notice of suspension under subsection 188.2(1) or (2) as if the notice were a notice of assessment made under section 152, with any modifications that the circumstances require including, for greater certainty, that a notice of suspension that is reconsidered or reassessed may be confirmed or vacated, but not varied, except that

  • (a) section 162 does not apply in respect of a return required to be filed under paragraph (6.1)(a); and

  • (b) the reference in each of subsections 165(2) and 166.1(3) to the expression “Chief of Appeals in a District Office or a Taxation Centre” is to be read as a reference to the expression “Assistant Commissioner, Appeals Branch”.

• Marginal note:Clarification re objections under subsection 168(4)

  (8.1) For greater certainty, in applying the provisions referred to in subsection (8), with any modifications that the circumstances require,

  • (a) a notice of objection referred to in subsection 168(4) does not constitute a notice of objection to a tax assessed under subsection 188(1.1); and

  • (b) an issue that could have been the subject of a notice of objection referred to in subsection 168(4) may not be appealed to the Tax Court of Canada under subsection 169(1).

• Marginal note:Interest

  (9) Subsection 161(11) does not apply to a liability of a taxpayer for a taxation year

  • (a) under subsection 188(1.1) to the extent that the liability is reduced by subsection (6.2), or paid, before the end of the one-year period that begins immediately after the end of the taxation year deemed to have ended by paragraph 188(1)(a); or

  • (b) under section 188.1 to the extent that the liability is reduced by subsection (6.3), or paid, before the end of the one-year period that begins immediately after the liability was first assessed.