Finance gives reprieve on mandatory disclosure rules

The Department of Finance will delay implementation of a sweeping update to the Income Tax Act’s mandatory disclosure regime that could affect financial advisors whose clients use aggressive tax-planning techniques.

In a release accompanying the government’s fall economic statement Thursday, Finance stated that it wished to “fully assess” feedback on draft legislation that would dramatically lower the threshold on the type of tax-planning transactions that trigger mandatory reporting to the Canada Revenue Agency (CRA).

Finance plans to “delay the coming into force date of the reporting requirements for reportable transactions and notifiable transactions until the date on which a bill implementing these changes receives royal assent.”

The legislation’s coming into force date would still be the beginning of the 2023 tax year, but penalties would only apply after the bill receives royal assent.

Currently, avoidance transactions — defined as having a tax benefit as their primary purpose — need to be reported to the CRA only when two of the following three hallmarks are present:

• advisors or promoters are engaged on a contingent-fee arrangement;
• advisors or promoters receive confidentiality protection regarding the transaction; and
• contractual protection is provided to the taxpayer or other parties in the event a tax benefit is challenged or ultimately fails to materialize.

However, under draft legislation released in February, a tax benefit would only have to be one of the main purposes of the transaction, and just one of the hallmarks would need to be present for the transaction to be reportable.

The new rules will place the onus on every advisor or promoter involved in a reportable transaction or series of transactions to make their own, separate disclosure to the CRA within 45 days rather than relying on a single report from the taxpayer.

Subsequent draft legislation in August pushed back the date on which the rules will take effect to the beginning of the 2023 tax year, but other amendments were largely cosmetic. They provide exemptions from reporting obligations for clerical and secretarial staff involved in transactions and a mechanism through which employers and partnerships can file reports on behalf of their employees and partners.

The consultation on the August draft legislation ended Sept. 30.

With files from Michael McKiernan

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.