Income Tax Act — I-3.3 188.1
r the private foundation held greater than an insignificant interest in respect of the class, or (ii) the Minister has, less than five years before the end of the taxation year, assessed a liability under paragraph (a) or this paragraph for a preceding taxation year of the private foundation in respect of any divestment obligation percentage. Avoidance of divestiture (3.2) If, at the end of a taxation year, a private foundation would — but for a transaction or series of transactions entered into by the private foundation or a relevant person in respect of the private foundation (in this subsection referred to as the “holder”) a result of which is that the holder holds, directly or indirectly, an interest (or for civil law, a right), in a corporation other than shares — have a divestment obligation percentage for that taxation year in respect of the private foundation’s holdings of a class of shares of the capital stock of the corporation, and it can reasonably be considered that a purpose of the transaction or series is to avoid that divestment obligation percentage by substituting shares of the class for that interest or right, for the purposes of applying this section, subsection 149.1(1) and section 149.2, (a) each of those interests or rights is deemed to have been converted, immediately after the time it was first held, directly or indirectly by the holder, into that number of shares of that class that would, if those shares were shares of the class that were issued by the corporation, have a fair market value equal to the fair market value of the interest or right at that time; (b) each such share is deemed to be a share that is issued by the corporation and outstanding and to continue to be held by the holder until such time as the holder no longer holds the interest or right; and (c) each of those shares is deemed to have a fair market value, at the particular time, equal to the fair market value, at the particular time, of a share of the class issued by the corporation, determined without reference to this subsection. Where subsection (3.5) applies (3.3) Subsection (3.5) applies to a private foundation at a particular time in a taxation year if (a) at the particular time, a person (in this subsection and subsection (3.5) referred to as an “insider” of the private foundation) that is the private foundation, or is a relevant person in respect of the private foundation, is a beneficiary under a trust; (b) at or before the particular time (i) the insider acquired an interest in or under the trust, or (ii) the trust acquired a property; (c) it may reasonably be considered that a purpose of the acquisition described in paragraph (b) was to hold, directly or indirectly, shares of a class of the capital stock of a corporation (referred to in subsection (3.5) as the “subject corporation”); (d) the shares described in paragraph (c) would, if they were held by the insider, cause the private foundation to have a divestment obligation percentage for the taxation year; and (e) at the particular time, the insider holds the interest described in subparagraph (b)(i), or the trust holds the property described in subparagraph (b)(ii), as the case may be. Rules applicable (3.4) For the purpose of subsections (3.3) and (3.5), (a) interests (or, for civil law, rights), other than shares, of a trust in a corporation that entitle the trust to a right described in paragraph 251(5)(b) in respect of a class of the capital stock of the corporation, are deemed to be converted into shares of that class in the manner described by paragraph (3.2)(a); and (b) if the amount of income or capital of the trust that a person may receive as a beneficiary under the trust depends on the exercise by any person of, or the failure by any person to exercise, a discretionary power, that person is deemed to have fully exercised, or to have failed to exercise, the power, as the case may be. Avoidance of divestiture (3.5) If this subsection applies to a private foun