CRA publishes a webpage on the mandatory disclosure rules

Positions of CRA on the mandatory disclosure rules include:

• A fee does not come within (a) of reportable transaction where the fee that is based solely on the value of the services provided in respect of a transaction or series and is determined without reference to the tax results of the transaction or series; this would cover, for example, the practice of value billing by professionals such as lawyers and accountants in which a fee is agreed to at the time of billing and is based on criteria (other than the value of the tax benefit resulting from the transaction or series).
• The contractual protection hallmark does not extend to “standard representations, warranties and guarantees between a vendor and purchaser, as well as 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), are not expected to give rise to reporting requirements for reportable transactions”
• Examples include:
  • “Indemnities related to existing pre-closing tax issues, or the amount of existing tax attributes (tax pools, capital cost allowance, etc.)”
  • A public-company acquiror “obtains specific contractual covenants and/or indemnities from the Target and the significant shareholders of the Target … that are intended to ensure the Target and/or the significant shareholders do not take certain steps that may cause the bump denial rules to apply … .”
  • Tax insurance is provided to the purchaser of taxable Canadian property from a non-resident regarding its liability for 25% or 50% of the purchase price absent a s. 116 certificate being issued by CRA.
  • Where there was a pre-sale payment of a safe income dividend, contractual protection is obtained regarding the calculation of safe income on hand.
• Also excluded is “contractual protection in the form of insurance that is integral to an agreement between persons acting at arm’s length for the sale of a business where it is reasonable to conclude that the insurance protection is intended to ensure that the purchase price paid under the agreement takes into account any liabilities of the business immediately prior to the sale and the insurance is obtained primarily for purposes other than to obtain a tax benefit from the transaction or series.”

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