CRA expands its positions on the mandatory disclosure rules

CRA has revised and expanded its webpage on the mandatory disclosure rules.

It has added a statement that:

Standard commercial indemnities provisions in standard client agreements or documentation, which do not contemplate a specific identified tax benefit or tax treatment would not, in and of themselves, result in a reporting obligation.

It has expanded its examples of acceptable contractual clauses, including expanding its example of public company bump covenants to those given respecting private-company bumps, and also added the following examples:

  • “Indemnities or covenants to a purchaser and/or target in respect of Part III tax liabilities and other adverse tax consequences arising from dividends paid as part of a pre-closing reorganization.”
  • “Standard contractual representations and indemnities with respect to the failure to deduct or withhold an amount under section 215, in an arm's length situation … “
  • A standard clause in a partnership agreement providing for reasonable assistance to a partner to help resolve an audit.
  • On an s. 132.2 merger, the fund manager indemnifying the trustee of the terminating fund for any liabilities that might arise in respect of the terminating fund (commercial disputes, securities law claims, etc.).

CRA states:

The contractual protection hallmark will not apply in a normal commercial or investment context in which parties deal with each other at arm's length and act prudently, knowledgeably and willingly, and does not extend contractual protection for a tax treatment in respect of an avoidance transaction.

Examples provided include tax indemnities in standard provisions such as gross-up clauses in loan or ISDA agreements, or in employment or severance agreements.

CRA has added a detailed footnote on transitional issues, stating, for instance:

If a person enters into a series of transactions that straddle the effective date of designation, the reporting requirement will be triggered with the first transaction entered into after the effective date of designation that is part of a series of transactions that is the same as, or substantially similar to one that is designated at that time by the Minister.

Neal Armstrong. Summaries of Mandatory disclosure rules – Guidance, 2 November 2023 CRA Webpage under s. 237.3(1) – reportable transaction – (a), confidential protection, contractual protection, s. 237.3(2), s. 237.4(6), s. 237.4(7), s. 237.5(1) - relevant financial statements, reportable uncertain tax treatment.