Every man is entitled if he can to arrange his
affairs so that the tax attaching under
the appropriate Acts is less than it otherwise would be.
-Inland Revenue Commissioners v. Duke of Westminster, [1936] A.C. 1, at pp. 19 et 20;
Apparently, the Canada Revenue Agency’s (CRA) work is becoming increasingly difficult. Experienced tax professionals who develop tax plans that are increasingly complex and difficult to identify. Sophisticated taxpayers who are always looking for ways to reduce their tax burden. Which may explain why the mandatory disclosure rules were introduced in June 2023.
The new sections 237.3, 237.4 and 237.5, which were added to the Income Tax Act, now require taxpayers, “promoters” and “advisors” to disclose “reportable transactions”, “notifiable transactions” and “reportable uncertain tax treatments” to the CRA. In other words, transactions that represent abusive tax planning strategies.
This approach may come as a surprise in more ways than one. One would think that ensuring compliance with Canada’s tax laws would rest with the CRA. The mandatory disclosure rules is certainly turning the system on its head.
Mandatory disclosure
- Reportable transactions
A reportable transaction is one that is basically an avoidance transaction and contains one of the following markers:
Generally, an avoidance transaction is one whose primary objective is to obtain a tax benefit. However, this definition is very broad and could, a priori, encompass a series of routine transactions aimed at deferring or minimizing tax liability.
Reading the Department of Finance's Explanatory Notes, we understand that the policy of the new regime is “to ensure disclosure of aggressive tax avoidance transactions” and not to target “normal commercial transactions that do not present an increased risk of abuse”. Over the coming months and years, we hope that the CRA will be able to provide further administrative guidance.
- Notifiable transactions
A notifiable transaction is a transaction or series of transactions that is identical or substantially similar to a transaction or series of transactions that have been designated by the Minister of National Revenue (Minister). Click here to see the list of transactions that have been designated by the Minister.
- Reportable uncertain tax treatments
In simple terms, these are situations where there is doubt as to whether a tax position taken by a taxpayer complies with tax legislation. These rules apply only to companies with assets worth more than $50 million at the end of the financial year. For the other conditions to be met, please click here.
Timing of disclosure
When a taxpayer, promoter or advisor must disclose a reportable transaction or a reportable transaction, it must do so within 90 days of the earlier of the following two dates:
Other administrative details
The rules on mandatory disclosures are complex. Please do not hesitate to contact me for further information.
Are you also having issues with the CRA? Call me. I can help.