On July 24, 2023, the Canada Revenue Agency (CRA) released the new and revised forms applicable to the enhanced mandatory disclosure rules under the Income Tax Act (Canada) (the “Act”).
In respect of notifiable transactions and reportable transactions occurring after June 21, 2023, Form RC312 Reportable Transaction and Notifiable Transaction Information Return (2023 and later tax years) is an updated version of the RC312 Reportable Transaction Information Return.
Form RC312 contains a number of expected changes, including:
- a new Part 3 for disclosure of notifiable transactions;
- fields for describing why the person filing the form is disclosing a notifiable transaction, including boxes to indicate whether the transaction is the same or substantially similar to a transaction or series designated by the Minister under subsection 237.4(3) of the Act;
- updated instructions, including a restatement of CRA’s prior position that if a favourable advance income tax ruling has been obtained and is attached, there is no need for detailed reporting other than the identification of the reporting person and disclosure of any transactions not disclosed in the advance tax ruling;
- updated definitions and statutory references; and
- links to the new CRA guidance.
Notably, new Part 3 of Form RC312 does not contain a “detailed description” field for notifiable transactions. This can be contrasted with Part 4 (equivalent to Parts 9 and 10 of the old Form RC312), which requires details of reportable transactions being disclosed.
The instructions to describe details of reportable transactions have also been revised. Filers are now required to describe “all potential benefits expected to result from the transaction or series of transactions”. Given that section 237.3 of the Act is applicable to “tax benefits” as defined in subsection 245(1), the broad request for a description of “all potential benefits” may reasonably be read down to include only “tax benefits” that fall within the subsection 245(1) definition.
Additionally, updated Form RC312 now contains an area to compute and remit late-filing penalties. Where a filer does not believe they are responsible for a late-filing penalty (for example, if they are relying on a due diligence defence), a letter explaining the basis for the exemption must be provided.
New Form RC3133 Reportable Uncertain Tax Treatments Information Return (2023 and later tax years) concerns reportable uncertain tax treatments (“RUTTs”) that must be reported by reporting corporations under section 237.5 of the Act, applicable to tax years that begin after 2022.
The information required by the new form in respect of RUTTs is substantial. Filers are asked to self-classify a RUTT under several criteria (e.g., temporary/non-temporary, whether tax attributes are involved, whether property valuations are involved, and whether the RUTT is international or domestic), calculate the “RUTT amount”, and also provide:
- a brief description of the transactions and tax treatments considered;
- an indication of the tax treatment ultimately taken; and
- applicable legislation relied upon.
While the examples of reporting on tax treatments considered in the instructions are indeed very brief (“capital gain/loss vs business income/loss”), the information provided may nonetheless serve as an audit roadmap. The requirement to disclose tax filing positions that were considered, even at a general level, effectively seeks to grant CRA access to advice that, in many cases, could be subject to solicitor-client privilege.
The need to provide such sensitive information to the CRA under Form RC3133 may be problematic in certain circumstances. A tension may arise between a taxpayer’s (or their accountant’s) desire to obtain as comprehensive and unqualified a legal opinion as possible and the need to reflect that opinion in the financial statements of a reporting corporation – which would then increase the level of disclosure made in Form RC3133.