New / expanded mandatory disclosure rules become law

On June 22, 2023, Bill C-47 – An Act to implement certain provisions of the budgets tabled in Parliament on March 28, 2023 received Royal Assent. As a consequence, new or expanded mandatory reporting rules for certain “reportable” or “notifiable” transactions (as well as for “uncertain tax treatments”) are now law.

Notifiable Transactions

Under the new notifiable transaction regime, taxpayers, promoters and advisors are required to provide detailed reporting in respect of transactions, or series of transactions, they undertake that are designated as “notifiable” or “substantially similar” to a notifiable transaction. For this purpose, the term “substantially similar” includes any transaction, or series of transactions, in respect of which a person is expected to obtain “the same or similar types of tax consequences” and that is “either factually similar or based on the same or a similar tax strategy.” The legislation expressly states that “substantially similar” should be “interpreted broadly in favour of disclosure.”

The rules present serious and prolonged issues for taxpayers and their advisors, as described in our previous blog.

To date, no transactions or series of transactions have been officially designated as notifiable. However, we expect that designations will be made in the near future – potentially in line with the “sample” notifiable transactions previously released by the Canada Revenue Agency.

Reportable Transactions

The amended reportable transaction rules require taxpayers, promoters and certain advisors to report subject transactions where one of the main purposes of the transaction or series is to obtain a tax benefit and any one of the following hallmarks apply (subject to limited exceptions):

Confidential protection – the promoter or advisor obtains anything that prohibits the disclosure of the details or structure of the transaction or series under which the tax benefit results

Contractual protection – the taxpayer receives any form of insurance or other protection against the failure of the transaction or series from achieving any tax benefit, or reimburses the taxpayer for any expenses incurred in respect of disputing the tax benefit

Contingency fee – the advisor or promoter is entitled to a fee that is based on the amount of the tax benefit that results from the transaction or series of transactions

Time for Filing

An information return must be filed on or before 90 days after the earliest of when the person becomes contractually obligated to enter into the transaction or when the person actually enters into the transaction.

Penalties

Non-compliance with the reporting obligations can result in significant penalties. In particular, the amount of the penalty can be:

• for taxpayers, up to $100,000 plus 25% of the amount of the tax benefit sought; and
• for advisors or promoters, an amount equal to the total of all fees charged, plus $1,000 for each day that the failure continues (to a maximum of $100,000), plus $10,000.