Section 189

Subsection 189(1) - Tax regarding non-qualified investment

Administrative Policy

5 December 2019 Internal T.I. 2017-0683831I7 - Prescribed Rates and Undue Benefits

use of prescribed rate does not insulate lender foundation from undue benefit rules

Headquarters rejected the proposition that where a registered charity that is a private foundation makes a loan at the prescribed rate of interest when the loan recipient receives the loan because of that debtor’s relationship with the private foundation or the foundation’s board of directors, the avoidance of any s. 189(1) tax on the debtor (because of the prescribed rate being used) means that there cannot be a penalty for undue benefits imposed on the private foundation under s. 188.1(4) in respect of the loan.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 188.1 - Subsection 188.1(4) the making of a loan at the prescribed rate under s. 189(1) does not prelude a penalty under s. 188.1(4) 179

28 July 1992 Memorandum 921859 (April 1993 Access Letter, p. 151, ¶C180-136)

A taxpayer is not considered to have "paid" interest on a loan owing by him to a charitable foundation by virtue only of journal entries being recorded in his ledgers and those of the foundation.

Subsection 189(3) - Share deemed to be debt

Administrative Policy

9 May 1994 External T.I. 9407105 - LIABILITY FOR PART V TAX

A deemed dividend arising on the redemption of shares gifted to a private foundation will be deemed to be interest for purposes of s. 189(1) by virtue of s. 189(3)(c). The amount of the debt will be the amount designated under s. 118.1(6) in respect of the gift of the shares.

28 January 1994 External T.I. 9401445 - PRIVATE FOUNDATIONS

Where an individual gifts shares of a corporation to a registered charity that is a private foundation, the cost amount of the shares to the foundation will be deemed pursuant to s. 69(1)(c) to be equal to their fair market value even if the individual donor designates an amount under s. 118.1(6) that is less than the fair market value of the shares.

June 1990 Meeting of Alberta Institute of Chartered Accountants (November 1990 Access Letter, ¶1499, Q. 3)

Where an individual rolls the shares of Opco under s. 85(1) to a newly-incorporated private foundation, the cost amount of the shares to the private foundation for the purposes of s. 189 will, by virtue of s. 69(1)(a), be the fair market value of the gift received.

Subsection 189(6) - Taxpayer to file return and pay tax

Administrative Policy

25 August 1994 Internal T.I. 9421756 - PENALTY - FAILURE TO FILE T2140

A person can be assessed a penalty under s. 162(1) for failure to file a return as required by s. 189 in respect of a non-qualified investment issued by a private foundation.

Subsection 189(7) - Minister may assess


Humane Society of Canada for the Protection of Animals and the Environment v. Canada (National Revenue), 2015 FCA 178

availability of s. 188.1(4) penalty did not preclude deregistration

The appellant appealed a CRA decision to revoke its registration, which was made on grounds which included reference to substantial amounts paid for what appeared to be personal expenditures of an officer and director.

Ryer JA found (at para. 59) that s. 189(7) provided "a complete answer" to the appellant's submission that the availability to the Minister of the imposition of penalties on the appellant under s. 188.1(4) meant that the Minister was precluded from revoking the appellant's registration.

See summaries under s. 168(1)(e) and s. 172(3)(a.1).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 168 - Subsection 168(1) - Paragraph 168(1)(e) personal expenses were intermingled in accounting records 238
Tax Topics - Income Tax Act - Section 172 - Subsection 172(3) - Paragraph 172(3)(a.1) no implied procedural rules in s. 172(3)(a.1) 155