Private foundations in Canada have to comply with the “Excess Corporate Holdings” requirements introduced by Finance in the 2007 Federal Budget. Canadian private foundations that hold more than 2% of the issued and outstanding shares of any class of shares of a corporation at any time during their first fiscal periods beginning after March 18, 2007, must complete a Excess Corporate Holdings Worksheet and may in certain circumstances have to divest themselves of some shares or pay a penalty.  This rule only does not apply to charitable organizations and public foundations, but only private foundations.  Paul Waldie of The Globe and Mail reported that “A private foundation formed by mining financier Frank Giustra, who has won wide acclaim for his philanthropic work, has run afoul of federal tax authorities for violating investment rules governing charities. In a rare move, the Canada Revenue Agency has hit Mr. Giustra’s The Radcliffe Foundation with a $147,000 penalty for “excessive corporate holdings.”

If you want to see the filings of all Canadian registered charities going back many years they are available for free at:

If you want to see which organizations have been suspended or penalized then use the drop down menu at the web address above to only look at those organizations.  At the moment we have two penalized charities and two suspended charities.

In the case of The Radcliffe Foundation it notes:
Effective Date of Penalty: 2010-05-20
Reason for Penalty: Penalty for Excess Corporate Holdings
Amount of Penalty: $ 147,749
Income Tax Act Reference: 188.1(3.1)”

It is important that the small number of private foundations that are affected by the excess corporate holdings requirements comply with their obligation to report and/or divest.  Frank Guistra’s response was “It’s no big deal.”  Perhaps he is thinking that penalties over $1000 can be satisfied by paying funds to other arms length Canadian charity (what is called an eligible donee) so it is not like the Federal Government gets to keep the money or that it has any real impact on his charitable foundation’s activities as they were probably going to give money to groups that qualified as eligible donees anyway. 

However, we should remember that our whole system of charity regulation is premised on voluntary compliance.  Also big players in the charitable sector are models for others in their philanthropy.  Failure by even a few private foundations to respect the rules, in addition to the penalties, may lead to greater CRA scrutiny of private foundations or perhaps tighter rules affecting all private foundations.  The generous tax incentives given to private foundations are not a right bestowed by G-d.  There are many Canadians who are uneasy that some very affluent Canadians can in some cases avoid almost all taxes by placing funds or assets in private foundations that they control and only have to legally disburse 3.5% of the amount of the average of the assets per year. Keep in mind that when those same wealthy people avoid paying hundreds of millions or billions in taxes that other taxpayers either have to shoulder the burden or government builds up bigger deficits or cuts spending even further.  So Mr. Guistra may be right that “It’s no big deal.” but if there is tighter regulation or scrutiny by CRA of private foundations this may be viewed by some as a watershed moment.  Hopefully this will be a one-time blip and The Radcliffe Foundation will fall into compliance and the focus in the future will instead be on the quality of their philanthropic work. 
You can read the article at: