CRA publishes a revised webpage on the mandatory disclosure rules

CRA has expanded its Webpage on the mandatory disclosure rules:

• The fee is paid by an insurance professional to a client’s advisor for a referral regarding a proposed policy to fund taxes arising on death, or the fee is paid by the advisor to the insurance professional for the referral of the estate freeze work, generally will not come within the contingent fee arrangements hallmark.
• In the context of its safe harbour from the contractual protection hallmark for traditional representations and warranties insurance policies, that are generally obtained in the ordinary commercial context of mergers and acquisitions transactions to protect a purchaser from pre-sale liabilities (including tax liabilities), it has added the comment:

For greater clarity, the contractual protection hallmark would not arise solely where the insurance or indemnity is based on the actions or inactions of a person to achieve a tax result.

• A standard indemnity clause in the trust terms protecting a trustee also will not generally come within this hallmark, provided that when the clause was created it was not reasonable to conclude that an aggressive tax avoidance transaction was contemplated.
• CRA has essentially finalized its position at the 2024 IFA Roundtable, Q.3 regarding the application of NT-2023-05 (re back-to-back arrangements) to cash pooling arrangements. It states:

In the context of a cross-border [physical or notional] cash pooling arrangement involving a Canadian taxpayer, non-arm’s length non-residents, and an arm’s length intermediary, assuming that the Canadian taxpayer is a debtor and at least one non-resident member of the pool resides in a jurisdiction with a higher interest withholding tax rate than the rate applicable to the intermediary, the arrangement would be a notifiable transaction [described in NT-2023-05] and results in a filing requirement where:

1. the taxpayer files or anticipates filing its income tax returns on the basis that the debt or other obligation owing by it, and the interest paid thereon, is not subject to the thin capitalization rules, or
2. the taxpayer reports or is expected to report that the interest it pays in respect of the arrangement is subject to the lower rate of withholding tax applicable to the intermediary.

A filing generally is not required where the Canadian taxpayer participating in the cash pooling arrangement is solely a creditor … .

[T]he filing of Form RC312 by a person in respect of the earliest transaction in the series of transactions forming the cash pooling arrangement will satisfy that person’s reporting obligation in respect of each transaction that is part of the series.

Neal Armstrong. Summaries of “Mandatory disclosure rules – Guidance,” 15 August 2024 CRA Webpage under s. 237.3(1) – reportable transaction – (a), contractual protection and s. 237.4(3).