Form T2081: Excess Corporate Holdings Worksheet Explained

A family that builds a business and then builds a foundation will, sooner or later, want the foundation to hold shares in the business. The Income Tax Act allows it, within limits, and the limits are policed through Form T2081, the Excess Corporate Holdings Worksheet for Private Foundations. The form is short and the rules behind it are not. In our practice it is the schedule most likely to be missed by a foundation that files its T3010 on time and believes it is fully compliant.

The Excess Corporate Holdings Regime in Brief

The regime applies only to private foundations, the designation a charity receives where 50 per cent or more of its officials do not deal with each other at arm's length, or where more than 50 per cent of its funding comes from a person or group that controls the charity in some way or that makes up more than 50 per cent of its officials. It was introduced in 2007 to stop a family-controlled foundation from holding a controlling stake in the family company with the tax benefits of charitable status.

The CRA's Guide T2082 walks through the calculations, and our broader guide to CRA compliance for private foundations places the regime alongside the other rules that apply to this designation.

The Two Thresholds: 2 Per Cent Monitoring and 20 Per Cent Divestment

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The 2 per cent test is about the foundation alone. The 20 per cent test aggregates the foundation with the people connected to it. A foundation holding 3 per cent of a public company where no insider holds anything else files a T2081 and stops there. A foundation holding 3 per cent of the family holding company where the founder holds 60 per cent has excess holdings, because the combined position is 63 per cent.

Relevant Persons and Material Interests

Generally, a relevant person is someone who does not deal at arm's length with the foundation, subject to limited statutory exclusions: the individuals who control it, their spouses and children, corporations they control, and the like. Their holdings count toward the 20 per cent test only where they have a material interest in the class, which the Act defines as holding more than 0.5 per cent of the issued and outstanding shares of that class, or shares of that class with a fair market value above $100,000. The foundation has to find out what those people own at its fiscal year end, which in a family context means asking.

Some holdings are exempt shares under transitional rules dating from the regime's introduction, and a foundation whose holdings in a class exceeded 20 per cent on March 18, 2007 has had a long runway to come into line. Those rules wind down for fiscal periods beginning after March 18, 2027, so affected foundations should be planning now.

Completing and Filing Form T2081

Form T2081 is filed with the T3010, not separately, and one worksheet is completed for each class of shares that triggered the reporting requirement. Part I calculates the holdings: the original corporate holdings percentage, the total percentage at year end, the excess percentage and any divestment obligation. Part II lists material transactions by the foundation and by relevant persons during the year. Most of the form is public, as the T3010 is; the section listing relevant persons' transactions is marked confidential.

A foundation that forgets the worksheet has filed an incomplete return, and the fix is a Form T1240 adjustment. Our post on avoiding T3010 filing mistakes lists the schedules that most often go missing.

Divestment Obligations and Penalties

Where excess holdings exist, the excess is allocated to a future year by which it must be gone, and how quickly depends on how the shares arrived. Shares the foundation bought carry the shortest window. Shares received by bequest carry the longest, up to five years. The Act also contains anti-avoidance rules for arrangements designed to keep shares below the thresholds on paper while control stays with the family.

Failing to meet a divestment obligation carries a penalty calculated on the fair market value of the shares that should have been sold, doubled for a repeat within five years, and the CRA may revoke the registration of a foundation that ignores the regime.

Two related rules travel with this designation. A foundation's route into or out of private foundation status is Form T2095, Application for Re-Designation, and loans or shares between the foundation and its insiders raise the separate issue of non-qualified investments and the Part V tax reported on Form T2140.

If your foundation holds shares in a private corporation, or the founder's family holds shares in a company the foundation also invests in, we can run the thresholds and prepare the worksheet before the T3010 is due. Call us at 416-488-5888, email us at ask@charitylawgroup.ca, or schedule a free meeting with our legal team. Form T2081 and Guide T2082 are linked from our forms and statutes page.

Frequently Asked Questions

Here are answers to the questions we hear most often about Form T2081.

Does the excess corporate holdings regime apply to public foundations or charitable organizations?

No. It applies only to registered charities designated as private foundations.

What if we exceeded 2 per cent during the year but were below it at year end?

The reporting requirement is triggered by exceeding 2 per cent at any time in the fiscal period, so a T2081 is still filed. The divestment test is applied at year end.

Does a T2081 have to be filed every year?

Only for fiscal periods in which the reporting threshold was met. A foundation that sells down below 2 per cent and stays there stops filing for that corporation.

Can the foundation just hold the shares through a subsidiary?

Holdings through controlled corporations are attributed to the foundation, and the Act contains anti-avoidance provisions aimed at exactly this. Structures intended to sidestep the thresholds should be reviewed before they are put in place, not after.

This article provides general information about the Income Tax Act rules for private foundations and is not legal advice. Speak with a charity lawyer about your organization's specific circumstances.

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