The s. 237.5 reporting rules lack a materiality threshold

Observations on the “reportable uncertain tax treatment” (RUTT) rules in s. 237.5 include:

• In contrast to the UK rules (which apply only if the company has UK turnover in excess of £200 million and assets on the balance sheet of more than £2 billion and only apply to uncertain tax treatments in excess of £5 million), the Canadian rules (including the penalties) apply irrespective of the materiality of the uncertain tax position, and the threshold for applying the rules is only $50 million of assets.
• A Canadian member of the group might need to report the uncertain tax treatment in a situation where there is only a nominal impact in Canada.
• In many situations, it might not even be aware of the uncertain tax treatment or have the requisite information to report its existence (the relevant documentation would likely be kept by other members of the group).
• A taxpayer may make a single entry for uncertain tax treatments to account for multiple interdependent potential adjustments, e.g., the reasonableness of a royalty may be considered in light of inter-affiliate charges for tangible goods. If the taxpayer were required to report the individual uncertain tax treatment even where an offsetting adjustment nets against the liability, excessive reporting would be the result – failing which, s. 237.5(5) penalties might be assessed on each uncertain treatment that was not reported.

Neal Armstrong. Summary of Dean Landry and Colin Mowatt, “The Uncertainty Surrounding Uncertain Tax Treatments,” Perspectives on Tax Law & Policy, Vol. 4, No. 3, September 2023, p. 13 under s. 237.5(2).