This applies to private foundations only.
A non-qualified investment is:
1. a debt, other than a pledge or an undertaking to make a gift, owing to the foundation by:
a) a person, other than an "excluded corporation", see below, who:
i) is a member, shareholder, trustee, settlor, officer, official, or director of the foundation;
ii) has contributed more than 50% of the foundation's capital or who is a member of a group of persons not dealing with each other at arm's length who have contributed more than 50% of the foundation's capital; or
iii) does not deal at arm's length with any person described in i) or ii);
b) a corporation, other than an "excluded corporation", controlled by:
i) the foundation;
ii) any person or group of persons described in a) above;
iii) the foundation and any other private foundation with which it does not deal at arm's length; or
iv) any combination of i), ii), and iii);
2. a share of a class of the capital stock of a corporation, other than an "excluded corporation", described in 1 above that the foundation holds. However, the law excludes from non-qualified investments any share listed on a designated stock exchange or a prescribed share of the capital stock of a taxable Canadian corporation.
3. a right the foundation holds to acquire a share described in 2 above.
An excluded corporation is:
- a limited dividend housing company to which paragraph 149(1)(n) of the Income Tax Act applies;
- a corporation whose issued shares are all held by the private foundation; or
- a corporation, all of the property of which is used by a registered charity in its administration or in carrying on its charitable activities.