Most disclosure can await the return (p. 4)
- The short reporting deadline should be restricted to information that warrants a short deadline, i.e., information that cannot await the return filing.
Harshness of January 1, 2022 effective date (pp. 4-5)
- In addition to many taxpayers missing reportable or notifiable transactions under a new set of rules, the January 1, 2022 effective date creates concerns including that when the final rules become law, the 45-day reporting deadline may have already passed for some transactions, and only the final transaction in a series of transactions may have occurred in 2022.
No de minimis safe harbor (pp. 5-6)
- Consistent with the OECD approach, there should be a de minimis test or other filter to reduce the potential administrative burden to CRA and taxpayers.
Potential overlap between reportable and notifiable transactions (p. 8)
- Thetr is potential overlap, i.e., that a transaction could both be substantially similar to a notifiable transaction, and also have a hallmark apply so as to engage the reportable transaction rules.
Advisors may not have exposure to the reporting triggers (pp. 6-7)
- 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, or their part in the transactions may be routine.
S. 237.3(4) should be retained (pp. 7-8)
- S. 237.3(4) should not be repealed, and a similar rule should be included for notifiable transactions under s. 237.4. The reporting requirement should apply at the firm level, rather than the employee or partner level.
Expansion of “avoidance transaction” (pp. 8-10)
- 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. An element of materiality should be added.
Breadth of fee hallmarks (pp. 10-11)
- The fee hallmark could potentially be engaged by “value” billing (in this regard the OECD observed that it should be permissible for the urgency of the tax advice, the size of the transaction, and the advisor’s skill or reputation to influence the fee), 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.
Breadth of confidential protection hallmark (pp. 11-12)
- The confidential-protection hallmark should be revised so that it only applies where heightened confidentiality conditions are imposed going beyond common practices for professional advice, for example, the focus could be on whether it is reasonable to conclude that none of the main reasons for the confidential protection was to prevent CRA or a competitor from becoming aware of the details or structure of the transaction or series.
Narrowness of (c)(i)(B) exclusion from contractual protection (pp. 12-13)
- In a share sale, the vendor can be considered a “promoter” who has granted “contractual protection” where the purchase agreement includes (i) indemnities related to pre-closing taxes or tax attributes or (ii) covenants for assistance in the event of disputes with third parties (including disputes regarding tax outcomes expected to apply to the purchaser).
- The word “offered” is potentially confusing since the contractual protection often will be an integral component of the sale agreement rather than something offered on its own.
- It is recommended that indemnities be referred to specifically in the (c)(i)(B) exclusion, that the reference to a “broad class of persons” be removed (as noted above, there may only be the vendor and purchaser) to avoid confusion, the word “offered” should be removed and a more general reference made to insurance, indemnity, protection or undertaking that is included as part of or related to a transaction or series of transactions.
Rules should be effective on royal assent (pp. 13-14)
- The rules should apply only to transactions undertaken after enactment, and transactions that have already occurred should not be subject to the rules unless a tax benefit arises after the date of enactment.
CRA website notification is insufficient (pp. 14-15)
- The notification process should use multiple forms of publication including the CRA website, news releases, and government publications such as the Canada Gazette.
Coordination with Quebec deadlines (p. 15)
- Under the Quebec 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.
Uncertain reporting requirements for transactions with recurring benefits (pp. 15-16)
- It is unclear whether transactions need to be reported 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?
- Specific instructions should be provided as to when transactions which provide benefits over a period of time are to be reported.
Reporting obligations may arise before a series is completed (pp. 17-18)
- A series of transactions can encompass many years – much longer than the 45-day 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. Therefore, an advisor may not know that there is a notifiable transaction until all the transactions in the series are completed or, alternatively, a new transaction could be designated while a series of transactions is underway.
- Although unclear, the taxpayer, advisors and promoters may be required to report before a series is completed. i.e., for some series, before they can know that there is a a notifiable transaction.
- S. 237.4(5) should be based on when the actual tax benefit is realized or, alternatively, the notifiable transaction designation should specifically identify when reporting is regarding a series of transactions.
Inappropriate joint and several liability (p. 18)
- It is unclear why the penalty provisions for failing to file an information return for reportable transactions (s. 237.3(9)) and notifiable transactions (s. 237.4(11)) each include a joint and several liability provision where there are multiple persons who are required to file.
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