The Joint Committee notes difficulties with the proposed reportable and notifiable transaction rules

Observations or recommendations of the Joint Committee on the reportable transaction rules in s. 237.3 as they would be revised by the February 4, 2022 package of draft amendments, and on the new notifiable transaction rules in draft s. 237.4, include:

• The proposals should take into account that some of the advisors involved in reportable or notifiable transaction may not be aware of the aspects of the planning giving rise to a reporting obligation, or whether the transactions end up being implemented.
• The change of the “avoidance transaction” test to refer to “one of the main purposes” of the transaction or series (rather than using a “primarily” test for a transaction) means that, for example, having a small safe income dividend (representing an acceptable tax benefit) as part of a series would render all transactions in the series avoidance transactions – so that the presence of only one hallmark would engage a reporting requirement.
• The fee hallmark could potentially be engaged by “value” billing, contingency work (which is common in non-“aggressive” areas such as SR&ED filings) and fees based on the number of taxpayers (for example, an accounting firm may bill for the preparation of T2057s on a per-transferor basis), especially given the “to any extent” language in that hallmark description.
• The draft exclusion in s. (c)(i)(B) from the contractual protection hallmark should be revised in various listed respects to clarify that the typical provisions in a share or asset sale agreement - where the vendor provides indemnities related to pre-closing taxes or tax attributes, or covenants for assistance in the event of disputes with third parties (including disputes regarding tax outcomes expected to apply to the purchaser) - will come within the exclusion.
• Under the Quebec notifiable transaction rules, a newly designated transaction need only be reported after the later of 120 days of publishing the transaction in the Quebec Gazette and 60 days after the day the Minister of Revenue of Québec determines that the obligation to disclose begins. A similar “later of” concept should be employed federally and, given that many taxpayers operate in Québec, consideration should be given to coordinating deadlines.
• It is unclear whether transactions need to be reported as notifiable transactions on a recurring basis and whether the sample list of notifiable transactions describes transactions that may provide tax benefits over a period of time – for example, would a transaction whereby CCPC status was lost before 2022 need to be reported because refundable taxes on investment income were avoided for subsequent years?
• Given that a series of transactions can encompass many years (much longer than the 45-day notifiable-transaction reporting window) and some of the examples (e.g., avoidance of deemed dispositions of trust property) deal with series where some steps may occur well into the future or not at all, an advisor may not know that there is a notifiable transaction until all the transactions in the series are completed and well after the reporting deadline.
• In particular, the taxpayer, advisors and promoters might be required to report before a series is completed. i.e., for some series, before they can know that there is a notifiable transaction.

Neal Armstrong. Summaries of Joint Committee, “Reportable Transaction and Notifiable Transaction Proposals,” 5 April 2022 Joint Committee Submission under s. 237.3(5), s. 237.3(1) - advisor, - avoidance transaction, - – reportable transaction - (a), - (b), - (c)(i)(B), s. 237.3(4), s. 237.4(4), s. 237.4(3), s . 237.4(5) and s. 237.3(9).