Canadian mandatory disclosure rules update: implementing bill and explanatory notes

Budget Implementation Act, 2023, No. 1, which includes the Canadian income tax mandatory disclosure rules, was introduced in Parliament on April 20, 2023 as Bill C-47. First announced in Budget 2021, the mandatory disclosure rules expand the existing reportable transaction rules and introduce new reporting obligations in respect of “notifiable transactions” and “reportable uncertain tax treatments”. Failure to comply with the new rules results in an extension of the normal reassessment period and can result in significant penalties. These rules introduce some new obligations which companies should be aware of from a risk and compliance perspective.

Currently, transactions are reportable to the Canada Revenue Agency (CRA) if they are “avoidance transactions” (within the meeting of the general anti-avoidance rule (GAAR)) and bear at least two of three generic hallmarks relating to contingent fees, confidential protection and contractual protection. The revised reportable transaction rules use an expanded definition of “avoidance transaction”, only require that one of the three hallmarks be present for the transaction or series to be reportable, make a number of changes to the hallmarks and significantly increase penalties and other adverse consequences for failure to report. This reporting is required by each relevant party; reporting by one party does not discharge the reporting obligations of other parties.  

Currently, all persons liable for a penalty in respect of a reportable transaction are jointly and severally liable. Bill C-47 eliminates such joint and several liability. No change was made to the relieving provision that filing an information return is not an admission that the GAAR applies to any disclosed transaction or that such transaction is part of a series of transactions.

Reportable transactions are required to be disclosed to the CRA in prescribed form, manner and timing. Failure to comply with the reporting obligation on a timely basis can give rise to a significant penalty that, in certain situations, can be as high as 25% of the amount of the relevant tax benefit.

Read the full Update posted on April 25, 2023.