Budget Implementation Act, 2004, No. 2 (S.C. 2005, c. 19)

Marginal note:Penalties for charities — carrying on business

• 188.1 (1) Subject to subsection (2), a registered charity 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 the registered charity

  • (a) is a private foundation; or

  • (b) is not a private foundation and the business is not a related business in relation to the charity.

• Marginal note:Increased penalty for subsequent assessment

  (2) A registered charity 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 the registered charity

  • (a) is a private foundation; or

  • (b) is not a private foundation and the business is not a related business in relation to the charity.

• 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:Undue benefits

  (4) A registered charity 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 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 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 includes a disbursement by way of a gift or the amount of any part of the income, rights, property or resources of the charity 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, who has contributed or otherwise paid into the charity more than 50% of the capital of the charity, or who deals not at arm’s length with such a person or with the charity, as well as any benefit conferred on a beneficiary by another person, at the direction or with the consent of the charity, that would, if it were not conferred on the beneficiary, be an amount in respect of which the charity 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;

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

  • (c) a gift to a qualified donee.

• Marginal note:Failure to file information returns

  (6) Every registered charity 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 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 and, after that assessment and in a subsequent taxation year, the charity issues, at the particular time, a receipt for a gift otherwise than in accordance with this Act and the regulations, the charity 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, the registered charity) 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 made a gift of property to another registered charity and it may reasonably be considered that one of the main purposes for the making of the gift was to unduly delay the expenditure of amounts on charitable activities, each of those charities is jointly and severally, or solidarily, liable to a penalty under this Act for its respective taxation year equal to 110% of the fair market value of the property.

Marginal note:Notice of suspension with assessment

• 188.2 (1) The Minister shall, with an assessment referred to in this subsection, give notice by registered mail to a registered charity that the authority of the charity to issue an official receipt referred to in Part XXXV of the Income Tax Regulations is suspended for one year from the day that is seven days after the notice is mailed, if the Minister has assessed the charity for a taxation year for

  • (a) a penalty under subsection 188.1(2);

  • (b) a penalty under paragraph 188.1(4)(b) in respect of an undue benefit, other than an undue benefit conferred by the charity by way of a gift; or

  • (c) a penalty under subsection 188.1(9) if the total of all such penalties for the taxation year exceeds $25,000.

• Marginal note:Notice of suspension — general

  (2) The Minister may give notice by registered mail to a registered charity that the authority of the charity to issue an official receipt referred to in Part XXXV of the Income Tax Regulations is suspended for one year from the day that is seven days after the notice is mailed

  • (a) if the charity contravenes any of sections 230 to 231.5; or

  • (b) if it may reasonably be considered that the charity has acted, in concert with another charity that is the subject of a suspension under this section, to accept a gift or transfer of property on behalf of that other charity.

• Marginal note:Effect of suspension

  (3) If the Minister has issued a notice to a registered charity under subsection (1) or (2), subject to subsection (4),

  • (a) the charity is deemed, in respect of gifts made and property transferred to the charity within the one-year period that begins on the day that is seven days after the notice is mailed, not to be a donee, described in paragraph 110.1(1)(a) or in the definition “total charitable gifts” in subsection 118.1(1), for the purposes of

    • (i) subsections 110.1(1) and 118.1(1),

    • (ii) the definitions “qualified donee” and “registered charity” in subsection 248(1), and

    • (iii) Part XXXV of the Income Tax Regulations; and

  • (b) if the charity is, during that period, offered a gift from any person, the charity shall, before accepting the gift, inform that person that

    • (i) it has received the notice,

    • (ii) no deduction under subsection 110.1(1) or credit under subsection 118.1(3) may be claimed in respect of a gift made to it in the period, and

    • (iii) a gift made in the period is not a gift to a qualified donee.

• Marginal note:Application for postponement

  (4) If a notice of objection to a suspension under subsection (1) or (2) has been filed by a registered charity, the charity may file an application to the Tax Court of Canada for a postponement of that portion of the period of suspension that has not elapsed until the time determined by the Court.

• Marginal note:Grounds for postponement

  (5) The Tax Court of Canada may grant an application for postponement only if it would be just and equitable to do so.

• 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.