Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.))

Act current to 2014-04-02 and last amended on 2014-01-01. Previous Versions

Marginal note:Penalty — carrying on business
  •  (1) Subject to subsection (2), a person is liable to a penalty under this Part equal to 5% of its gross revenue for a taxation year from any business that it carries on in the taxation year, if

    • (a) the person is a registered charity that is a private foundation;

    • (b) the person is a registered charity that is not a private foundation and the business is not a related business in relation to the charity; or

    • (c) the person is a registered Canadian amateur athletic association and the business is not a related business in relation to the association.

  • Marginal note:Increased penalty for subsequent assessment

    (2) A person that, less than five years before a particular time, was assessed a liability under subsection (1) or this subsection, for a taxation year, is liable to a penalty under this Part equal to its gross revenue for a subsequent taxation year from any business that, after that assessment and in the subsequent taxation year, it carries on at the particular time if

    • (a) the person is a registered charity that is a private foundation;

    • (b) the person is a registered charity that is not a private foundation and the business is not a related business in relation to the charity; or

    • (c) the person is a registered Canadian amateur athletic association and the business is not a related business in relation to the association.

  • Marginal note:Control of corporation by a charitable foundation

    (3) If at a particular time a charitable foundation has acquired control (within the meaning of subsection 149.1(12)) of a particular corporation, the foundation is liable to a penalty under this Part for a taxation year equal to

    • (a) 5% of the total of all amounts, each of which is a dividend received by the foundation from the particular corporation in the taxation year and at a time when the foundation so controlled the particular corporation, except if the foundation is liable under paragraph (b) for a penalty in respect of the dividend; or

    • (b) if the Minister has, less than five years before the particular time, assessed a liability under paragraph (a) or this paragraph for a preceding taxation year of the foundation in respect of a dividend received from any corporation, the total of all amounts, each of which is a dividend received, after the particular time, by the foundation, from the particular corporation, in the taxation year and at a time when the foundation so controlled the particular corporation.

  • Marginal note:Penalty for excess corporate holdings

    (3.1) A private foundation is liable to a penalty under this Part for a taxation year, in respect of a class of shares of the capital stock of a corporation, equal to

    • (a) 5% of the amount, if any, determined by multiplying the divestment obligation percentage of the private foundation for the taxation year in respect of the class by the total fair market value of all of the issued and outstanding shares of the class, except if the private foundation is liable for the taxation year under paragraph (b) for a penalty in respect of the class; or

    • (b) 10% of the amount, if any, determined by multiplying the divestment obligation percentage of the private foundation for the taxation year in respect of the class by the total fair market value of all of the issued and outstanding shares of the class, if

      • (i) the private foundation has failed to disclose, in its return required under subsection 149.1(14) for the taxation year,

        • (A) a material transaction, in the taxation year, of the private foundation in respect of the class,

        • (B) a material interest held at the end of the taxation year by a relevant person in respect of the private foundation, or

        • (C) the total corporate holdings percent-age of the private foundation in respect of the class at the end of the taxation year, unless at no time in the taxation year the private foundation held greater than an insignificant interest in respect of the class, or

      • (ii) the Minister has, less than five years before the end of the taxation year, assessed a liability under paragraph (a) or this paragraph for a preceding taxation year of the private foundation in respect of any divestment obligation percentage.

  • Marginal note:Avoidance of divestiture

    (3.2) If, at the end of a taxation year, a private foundation would — but for a transaction or series of transactions entered into by the private foundation or a relevant person in respect of the private foundation (in this subsection referred to as the “holder”) a result of which is that the holder holds, directly or indirectly, an interest (or for civil law, a right), in a corporation other than shares — have a divestment obligation percentage for that taxation year in respect of the private foundation’s holdings of a class of shares of the capital stock of the corporation, and it can reasonably be considered that a purpose of the transaction or series is to avoid that divestment obligation percentage by substituting shares of the class for that interest or right, for the purposes of applying this section, subsection 149.1(1) and section 149.2,

    • (a) each of those interests or rights is deemed to have been converted, immediately after the time it was first held, directly or indirectly by the holder, into that number of shares of that class that would, if those shares were shares of the class that were issued by the corporation, have a fair market value equal to the fair market value of the interest or right at that time;

    • (b) each such share is deemed to be a share that is issued by the corporation and outstanding and to continue to be held by the holder until such time as the holder no longer holds the interest or right; and

    • (c) each of those shares is deemed to have a fair market value, at the particular time, equal to the fair market value, at the particular time, of a share of the class issued by the corporation, determined without reference to this subsection.

  • Marginal note:Where subsection (3.5) applies

    (3.3) Subsection (3.5) applies to a private foundation at a particular time in a taxation year if

    • (a) at the particular time, a person (in this subsection and subsection (3.5) referred to as an “insider” of the private foundation) that is the private foundation, or is a relevant person in respect of the private foundation, is a beneficiary under a trust;

    • (b) at or before the particular time

      • (i) the insider acquired an interest in or under the trust, or

      • (ii) the trust acquired a property;

    • (c) it may reasonably be considered that a purpose of the acquisition described in paragraph (b) was to hold, directly or indirectly, shares of a class of the capital stock of a corporation (referred to in subsection (3.5) as the “subject corporation”);

    • (d) the shares described in paragraph (c) would, if they were held by the insider, cause the private foundation to have a divestment obligation percentage for the taxation year; and

    • (e) at the particular time, the insider holds the interest described in subparagraph (b)(i), or the trust holds the property described in subparagraph (b)(ii), as the case may be.

  • Marginal note:Rules applicable

    (3.4) For the purpose of subsections (3.3) and (3.5),

    • (a) interests (or, for civil law, rights), other than shares, of a trust in a corporation that entitle the trust to a right described in paragraph 251(5)(b) in respect of a class of the capital stock of the corporation, are deemed to be converted into shares of that class in the manner described by paragraph (3.2)(a); and

    • (b) if the amount of income or capital of the trust that a person may receive as a beneficiary under the trust depends on the exercise by any person of, or the failure by any person to exercise, a discretionary power, that person is deemed to have fully exercised, or to have failed to exercise, the power, as the case may be.

  • Marginal note:Avoidance of divestiture

    (3.5) If this subsection applies to a private foundation at a particular time in respect of an interest of an insider of the private foundation in a trust, for the purposes of applying this section, subsection 149.1(1) and section 149.2,

    • (a) the insider is deemed to hold at the particular time, in addition to any shares of the capital stock of the subject corporation that it holds otherwise than because of this subsection, the number of shares, of the class of shares referred to in paragraph (3.3)(c), determined by the formula

      A × B/C

      where

      A 
      is the number of shares of that class that are held, directly or indirectly, by the trust at the particular time,
      B 
      is the total fair market value of all interests held by the insider in the trust at the particular time, and
      C 
      is the total fair market value of all property held by the trust at the particular time;
    • (b) each of those shares is deemed to be a share that is issued by the subject corporation and outstanding and to continue to be held by the holder until such time as the holder no longer holds the interest or right; and

    • (c) each of those shares is deemed to have a fair market value, at the particular time, equal to the fair market value, at the particular time, of a share of the class issued by the subject corporation, determined without reference to this subsection.

  • Marginal note:Undue benefits

    (4) A registered charity or registered Canadian amateur athletic association that, at a particular time in a taxation year, confers on a person an undue benefit is liable to a penalty under this Part for the taxation year equal to

    • (a) 105% of the amount of the benefit, except if the charity or association is liable under paragraph (b) for a penalty in respect of the benefit; or

    • (b) if the Minister has, less than five years before the particular time, assessed a liability under paragraph (a) or this paragraph for a preceding taxation year of the charity or association and the undue benefit was conferred after that assessment, 110% of the amount of the benefit.

  • Marginal note:Meaning of undue benefits

    (5) For the purposes of this Part, an undue benefit conferred on a person (referred to in this Part as the “beneficiary”) by a registered charity or registered Canadian amateur athletic association includes a disbursement by way of a gift or the amount of any part of the income, rights, property or resources of the charity or association that is paid, payable, assigned or otherwise made available for the personal benefit of any person who is a proprietor, member, shareholder, trustee or settlor of the charity or association, who has contributed or otherwise paid into the charity or association more than 50% of the capital of the charity or association, or who deals not at arm’s length with such a person or with the charity or association, as well as any benefit conferred on a beneficiary by another person, at the direction or with the consent of the charity or association, that would, if it were not conferred on the beneficiary, be an amount in respect of which the charity or association would have a right, but does not include a disbursement or benefit to the extent that it is

    • (a) an amount that is reasonable consideration or remuneration for property acquired by or services rendered to the charity or association;

    • (b) a gift made, or a benefit conferred,

      • (i) in the case of a registered charity, in the course of a charitable act in the ordinary course of the charitable activities carried on by the charity, unless it can reasonably be considered that the eligibility of the beneficiary for the benefit relates solely to the relationship of the beneficiary to the charity, and

      • (ii) in the case of a registered Canadian amateur athletic association, in the ordinary course of promoting amateur athletics in Canada on a nationwide basis; or

    • (c) a gift to a qualified donee.

  • Marginal note:Failure to file information returns

    (6) Every registered charity and registered Canadian amateur athletic association that fails to file a return for a taxation year as and when required by subsection 149.1(14) is liable to a penalty equal to $500.

  • Marginal note:Incorrect information

    (7) Except where subsection (8) or (9) applies, every registered charity and registered Canadian amateur athletic association that issues, in a taxation year, a receipt for a gift otherwise than in accordance with this Act and the regulations is liable for the taxation year to a penalty equal to 5% of the amount reported on the receipt as representing the amount in respect of which a taxpayer may claim a deduction under subsection 110.1(1) or a credit under subsection 118.1(3).

  • Marginal note:Increased penalty for subsequent assessment

    (8) Except where subsection (9) applies, if the Minister has, less than five years before a particular time, assessed a penalty under subsection (7) or this subsection for a taxation year of a registered charity or registered Canadian amateur athletic association and, after that assessment and in a subsequent taxation year, the charity or association issues, at the particular time, a receipt for a gift otherwise than in accordance with this Act and the regulations, the charity or association is liable for the subsequent taxation year to a penalty equal to 10% of the amount reported on the receipt as representing the amount in respect of which a taxpayer may claim a deduction under subsection 110.1(1) or a credit under subsection 118.1(3).

  • Marginal note:False information

    (9) If at any time a person makes or furnishes, participates in the making of or causes another person to make or furnish a statement that the person knows, or would reasonably be expected to know but for circumstances amounting to culpable conduct (within the meaning assigned by subsection 163.2(1)), is a false statement (within the meaning assigned by subsection 163.2(1)) on a receipt issued by, on behalf of or in the name of another person for the purposes of subsection 110.1(2) or 118.1(2), the person (or, where the person is an officer, employee, official or agent of a registered charity or registered Canadian amateur athletic association, the charity or association) is liable for their taxation year that includes that time to a penalty equal to 125% of the amount reported on the receipt as representing the amount in respect of which a taxpayer may claim a deduction under subsection 110.1(1) or a credit under subsection 118.1(3).

  • Marginal note:Maximum amount

    (10) A person who is liable at any time to penalties under both section 163.2 and subsection (9) in respect of the same false statement is liable to pay only the greater of those penalties.

  • Marginal note:Delay of expenditure

    (11) If, in a taxation year, a registered charity has entered into a transaction (including a gift to another registered charity) and it may reasonably be considered that a purpose of the transaction was to avoid or unduly delay the expenditure of amounts on charitable activities, the registered charity is liable to a penalty under this Act for its taxation year equal to 110% of the amount of expenditure avoided or delayed, and in the case of a gift to another registered charity, both charities are jointly and severally, or solidarily, liable to the penalty.

  • Marginal note:Gifts not at arm’s length

    (12) If a registered charity has in a taxation year received a gift of property (other than a designated gift) from another registered charity with which it does not deal at arm’s length and it has expended, before the end of the next taxation year, in addition to its disbursement quota for each of those taxation years, an amount that is less than the fair market value of the property, on charitable activities carried on by it or by way of gifts made to qualified donees with which it deals at arm’s length, the registered charity is liable to a penalty under this Act for that subsequent taxation year equal to 110% of the difference between the fair market value of the property and the additional amount expended.

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending Acts. 2005, c. 19, s. 44;
  • 2007, c. 35, s. 56;
  • 2009, c. 2, s. 62;
  • 2010, c. 25, s. 51;
  • 2011, c. 24, s. 59.