Canada enacted new mandatory disclosure rules on June 22 for certain tax transactions that took effect immediately. The new requirements significantly tighten and expand previous disclosure rules, and will impose a new compliance burden on taxpayers, advisers, and promoters.
Reportable transactions under the new regime are generally defined as “avoidance transactions” with any of the following three features:
- Fees are contingent, are based on the tax benefit, or are attributable to the number of taxpayers who participate
- A promoter or advisor requires confidentiality
- A taxpayer, promoter or advisor requires contractual protection such as insurance
The definition of “avoidance transaction” has also been expanded significantly, so that obtaining a tax benefit no longer has to be the “primary purpose” for entering the transaction and can be “one of the main purposes.”
The reporting deadline has been accelerated to within 90 days of the transaction, and all relevant parties must now report it. Penalties have also increased significantly.
In addition, the legislation introduces new reporting rules for “notifiable transactions” as designated by the Minister of National Revenue, as well as mandatory reporting of uncertain tax positions. The rules will have a significant impact on Canadian tax planning. See the alert from Grant Thornton Canada for more information.
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