Non-qualified investment – Tax liability


Reference number

August 15, 2011

This guidance replaces Summary policy CSP-N04, Non-qualified investment.


When a registered charity that is designated as a private foundation holds a non-qualified investment, a tax liability may arise in the hands of the issuer of the non-qualified investment. The issuer of the non-qualified investment will be liable to a tax if the foundation does not receive interest or dividends on those holdings equal to an amount calculated with reference to prescribed rates.

Non-qualified investment

Under subsection 149.1(1) of the Income Tax Act, a non-qualified investment of a private foundation generally refers to a debt, share, or a right to acquire a share.

Specifically, a non-qualified investment is:

(a) a debt, other than a pledge, owing to the foundation by a person (other than an excluded corporation) who:

(i) is a member, shareholder, trustee, settlor, officer, official, or director of the foundation (or persons who do not deal at arm’s length with any of these individuals);

(ii) individually, or as a member of a group of persons who do not deal with each other at arm’s length, who contributed more than 50% of the foundation’s capital (or persons who do not deal at arm’s length with any of these persons); or

(iii) is a corporation controlled by the foundation, any person or group of persons referred to in (i) or (ii) above, the foundation and any other private foundation it does not deal with at arm’s length, or by any combination thereof;

(b) a share held by the private foundation in a corporation (other than a share of an excluded corporation) described in (a)(iii), provided the share is neither listed on a designated stock exchange nor prescribed as per section 6203 of the Income Tax Regulations; or

(c) a right held by the foundation to acquire a share referred to in (b).

 For the purposes of this definition, an excluded corporation is:

Tax on non-qualified investments

Under section 189 of the Income Tax Act, a tax, where applicable, is equal to the amount, if any, by which the interest or dividends the issuer paid on each non-qualified investment to the foundation is less than the amounts determined with reference to the rates prescribed in Income Tax Regulations 4301.


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