New rules are coming into force that make it mandatory for people and their financial advisors to report certain financial transactions to the CRA. These rules were originally proposed back in 2021 as part of the federal budget an were enacted as of June 22, 2023. The purpose of these rules is to provide the CRA with earlier access to information regarding certain transactions and tax planning arrangements.
A taxpayer is required to file an information return (Form RC312) disclosing the reportable transaction to the CRA within 90 days of the earlier of the day the transaction is entered into or the day the parties are contractually obligated to enter into the transaction.
Reportable Transactions:
To understand what needs to be reported, a transaction must be an avoidance transaction and meet at least one of three specific criteria:
- A contingent fee arrangement
- Confidential protection
- Contractual protection
When disclosure is required, it must be reported by the person who gets or expects to get a tax benefit AND the promoter or advisor entitled to a fee for the transaction.
CRA guidance has provided examples where transactions are likely excluded from the reporting obligation which include estate freezes, debt restructuring, loss consolidation, shareholder loan repayments, purification transactions, claiming the capital gain exemption, and divisive reorganizations.
CRA has provided additional guidance here. Some examples of transactions CRA has indicated would be reportable can be reviewed here.
Penalties:
Failure to report a reportable or notifiable transaction will result in the following penalties:
- $500 per week up to a maximum of the greater of $25,000 and 25% of the tax benefit
- $2,000 per week up to a maximum of the greater of $100,000 and 25% of the tax benefit for corporations having a total carrying value of more than $50,000,000
- Advisors and promoters up to a maximum of $100,000.
Overall, CRA has suggested that the majority of “standard” tax planning transactions will not be reportable. However, the law could be interpreted much more broadly and CRA guidance/policy could change. In many cases it will be prudent to file when there is uncertainty whether these rules apply until further guidance is released.
