new “control” test, based on commercial exceed 2% and the combined holdings of
a controlled corporation (generally a
law concepts, such as arm’s length and de the foundation and all non-arm’s length
corporation controlled by the
facto control. These changes will apply persons exceed 20%, either the
foundation, a “relevant” person or a
after 1999. CRA has recently taken the foundation or the other persons (or the
group of “relevant persons” with
position that the proposed rules will group collectively) is required to divest to
respect to the foundation);
apply currently, without yet being below the 20% level. If the divestiture
c) if the foundation and those relevant
enacted, because they will be retroactive.
does not occur within stipulated periods
of time, the foundation will be subject to
Registered charities should include
persons had owned the listed shares
penalties. CRA can treat non-arm’s length
the CRA web site address on official
directly, they would hold more than
persons as dealing at arm’s length, if
receipts, despite the fact that the new
20% of the listed shares of that
sufficient reasons are given.
corporation; and
rules have not been yet enacted.
Intermediate sanctions can now be
d) the foundation, together with all
There are transitional rules for private
foundations that held shares on March
assessed against registered charities. This
controlled corporations, holds more
19, 2007. The period for compliance will
gives CRA the option of assessing tax or
than 2% of the listed shares of the
vary depending on the size of the holdings
penalties rather than revoking registration,
listed corporation.
and will range from 5 to 20 years. The
for various types of non-compliance,
Extending the concept of excess
such as issuing improper receipts,
rules are designed to encourage private holdings to shares of private corporations
carrying on an unrelated business (in the
foundations to complete this transition in went further than had originally been
case of a charitable foundation or
a timely manner by denying donors relief expected and seems to be unrelated to
charitable organization) or carrying on
from capital gains on donations of the incentive for gifts of marketable
any business (in the case of a private
marketable securities for taxation years of securities. Despite the changes, these
foundation), acquiring control of a
the private foundation beginning after rules are still onerous and regarded by
corporation, conferring an undue benefit
March 19, 2012, if it is not then in many observers as over-reacting and too
compliance with the new rules.
and other defaults. There is a new regime
broadly aimed.
for objections and appeals by charities
These rules, which are very complex,
The amendments include new “look-
and greater transparency. The new rules are apparently intended to address through” rules for trusts in which a private
for creating endowments, transfers concerns about potential “self-dealing”. foundation has an interest, if the trust
between charities and the disbursement Some relief will be available for a limited owned the shares on March 18, 2007, new
quota will require charities to plan more number of situations as a result of changes rules dealing with “substituted” shares that
carefully than in the past.
introduced in the February 26, 2008 are acquired in the course of certain tax-
Anti-avoidance
rules
prevent
budget and in new Bill C- 10, which was deferred corporate reorganizations and a
“trafficking” in unused charitable
introduced in February, 2009 and proposal to fix an anomaly where a
donations made by corporations. In
received Royal Assent in March, 2009 foundation owns entrusted shares of
some cases, unused deductions for
(not to be confused with the former Bill which it cannot divest itself.
previous donations have been available to
C- 10 which died on the order paper).
These additional changes, which are
a subsequent purchaser of the shares of a intended to provide relief, also clearly
There are currently exemptions for
corporation.
“entrusted shares”, which are shares
illustrate the extreme complexity of the
donated before March 19, 2007 that are
CRA has recently released revised
excess business holdings rules.
subject to a condition requiring the
form T3010B after consulting with the
foundation to retain them. Although the
charities sector. This form has evolved
CAVEAT
foundation is not required to divest itself
over time and will provide public
of these shares, they must be taken into
This summary is of a general nature
information as well as assist CRA in only, is not exhaustive of all Canadian
account in determining whether other
ensuring that charities comply with the income tax considerations and is not
shares of the same class are subject to the
requirements in the ITA.
intended to be, nor should it be construed
excess business holdings rules. The
With the introduction of intermediate
to be, legal or tax advice to any particular
amendments will exclude from the
sanctions and the new rules for excess
reader. Therefore, readers should consult
divestiture requirements certain unlisted
business holdings by private foundations,
their own tax and legal advisers with
shares that were held by the foundation
the revised form requires additional
respect to their particular circumstances.
on March 18, 2007. Although there will
information that will assist CRA in April2009
be no divestiture requirement, these
determining whether penalties should be
shares will also be taken into account, in
James M. Parks
assessed.
determining whether other shares of the
Cassels Brock & Blackwell LLP
For taxation years beginning after same class are subject to the regime.
March 19, 2007, a private foundation
Member of:
The new exclusion applies to shares
that owns more than 2% of any class of
that meet the following criteria:
• Canadian Bar Association
shares of a corporation is required to
• Canadian Tax Foundation
a) the share provides the foundation
report its holdings together with those of
• International Fiscal Association
persons not dealing at arm’s length with
with an indirect interest in listed
• International Bar Association
it, when filing its T3010 return for the
shares of another corporation;
• Society of Trust and Estate
year. Where the holdings of a foundation
b) the indirect interest is held through Practitioners
