Mandatory Disclosure Rules of the Income Tax Act

The “Mandatory Disclosure Rules” of the Income Tax Act (ITA) regime initially applied to transactions or series of transactions entered after 2010 to address aggressive tax planning.

The original legislation required that two of three hallmarks were required to trigger reporting. The hallmarks are as follows:

1. Contingency Fees

2. Confidential Protection required by the promoter or tax advisor

3. Contractual Protection is afforded to the taxpayer

Updated filing requirements

On November 3, 2022, legislative changes were made to the reporting requirements as follows:

1. Reportable transactions and notifiable transactions will be the date the enacting legislation receives royal assent. (As of the writing of this article, the legislation has not received royal assent.)

2. Specified corporations and uncertain tax treatments will be taxation years beginning after 2022, with penalties only applying upon royal assent of enacting legislation.

Reportable Transactions

Only one of the hallmarks is required to trigger reporting. A transaction or series of transactions is reportable if one of the main purposes of entering the transaction is to obtain a tax benefit.

Notifiable Transactions

Notifiable transactions are any transaction or series of transactions that CRA may find to be abusive (tax avoidance) and transactions of interest.

Uncertain Tax Treatments

Uncertain tax treatments are tax treatments used or planned to be used in an entity’s income tax filings where there is uncertainty over whether the tax treatment will be accepted in accordance with tax law. This reporting applies to “specified corporations” (assets greater than $50 million or publicly traded).

The transaction or series of transactions must be reported by the taxpayer (or their promoter, or their advisor on behalf of the client) within 45 days of the earlier of: n The day the taxpayer becomes contractually obligated to enter the transaction n The day the taxpayer enters the transaction

Penalties For Failure to Report

For taxpayers with reportable or notifiable transactions the penalty is $500 per week up to the greater of $25,000 and 25% of the tax benefit or, for specified corporations, $2,000 per week up to the greater of $100,000 and 25% of the tax benefit. For taxpayers with uncertain tax treatment the penalty for each uncertain tax treatment is equal to $2,000 per week to a maximum of $100,000. The changes are broad. We would advise that you review the mandatory reporting requirements with your tax professional, where you are entering into a transaction outside of normal business practices.

For further information please do not hesitate to contact us at Millards at (519) 759-3511 or visit www.millards.com

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