New Canadian Disclosure Requirements
New rules to enhance Canada’s mandatory disclosure requirements were enacted on June 22, 2023. The new rules, which include expanding the existing reportable transaction rules and new reporting requirements for notifiable transactions and reportable uncertain tax treatments, are intended to provide the Canada Revenue Agency (CRA) with earlier access to relevant information for certain transactions and tax planning arrangements.
In addition, on July 5, 2023, the CRA published guidance on the new rules, which provide an overview of the mandatory disclosure rules and more detailed guidance. The 2021 federal budget outlined broad proposals to enable the CRA to have better visibility of transactions or tax-reduction planning that it would consider aggressive in nature. These proposals are based on the principles in the Organization for Economic Co-operation and Development (OECD) project to identify base erosion and profit shifting (BEPS), Action 12: Final Report.
The proposals focused on:
- Strengthening the existing reportable transaction rules in section 237.3 of the Income Tax Act (Canada)
- New reporting requirements for certain notifiable transactions designated by the Minister of National Revenue
- New rules to require larger corporations to disclose all “reportable uncertain tax treatments” to the CRA in their audited financial statements
- The indefinite extension of the reassessment periods and penalties for noncompliance, including the expansion or introduction of reporting requirements and penalties for professional tax advisors and promoters under certain circumstances
Notifiable transactions are a new category of transactions introduced in new section 237.4 of the Act. Generally, these rules are intended to provide the CRA with pertinent information relating to tax avoidance transactions and other transactions of interest on a timely basis. For these purposes, any transaction or series of transactions that are expected to obtain the same or similar types of tax consequences that are either factually similar or based on the same or a similar tax strategy will be considered substantially similar.
Furthermore, the legislation specifies that the phrase “substantially similar” should be interpreted broadly in favor of disclosure. Noteworthy, Bill C‑47 also includes reporting exceptions and clarifications, including a “reasonable expectation to know” rule, which generally provides that only advisors/promoters who know, or are reasonably expected to know, of their reporting obligations are required to file the necessary information for a notifiable transaction.
In addition, new rules requiring larger corporations to report to the CRA all “reportable uncertain tax treatments” are introduced in section 237.5 of the Act. Under the new regulations, a corporation will generally be required to report an uncertain tax treatment if:
- The corporation is required to file a Canadian income tax return for the taxation year
- The corporation had at least CA$50 million in assets at the end of the last financial year (that ends before the end of the tax year, or that coincides with the tax year)
- The corporation or a related corporation has audited financial statements (prepared in accordance with International Financial Reporting Standards (IFRS) or other country-specific generally accepted accounting principles (GAAP) relevant for domestic public companies)
Bill C‑47 introduces various penalties for noncompliance with the mandatory disclosure requirements, which may be significant. For example, for corporations required to report uncertain tax treatments, the penalty for each failure to report a particular treatment will be CA$2,000 per week, up to a maximum of CA$100,000.
Please contact our Global Business Services team if you have any questions regarding Canadian disclosure requirements or any other international tax matter.
Jason Rauhe, CPA is a Principal in the firm’s Global Business Services practice and is responsible for assisting clients and adding depth in all areas of the firm’s international tax consulting services including transfer pricing, and the firm’s compliance expertise.
Rauhe previously served as Director of International Tax at a Top 100 CPA Firm, where he was responsible for the firm’s international tax division and major industry alliance networks.