INCOME TAX ACT PROPOSED AMENDED MANDATORY DISCLOSURE RULES – IMPLEMENTATION DELAY A CHANCE TO RETHINK?
On November 3, 2022, the Department of Finance announced it will delay the implementation of amendments to the mandatory disclosure rules that would lower the threshold for reporting to the Canada Revenue Agency (CRA) on tax-planning transactions, in order to fully assess the feedback it received from its public consultation. For example, the Chartered Professional Accountants of Canada (CPA Canada) cautioned that the new rules may be too broad and that the proposed lower threshold for reportable transactions under the amended rules may capture many routine and non-aggressive tax planning strategies.
Under the existing rules, avoidance transactions which have as their primary purpose obtaining a tax benefit, must be reported when two of three ‘’hallmarks’’ (contingent fee arrangements, confidential, and contractual protections) are present. In contrast, for a transaction to be reportable to the CRA under the proposed legislation, only one of three hallmarks would be required. Obtaining a tax benefit need be only one of the main purposes rather than the primary purpose of the transaction. Finally, the transaction must be reported within 45 days by advisors acting on behalf of clients, rather than industry relying on the taxpayer’s report as currently permitted.
While postponing the implementation of the amended mandatory reporting rules is welcomed by the IIAC to allow the industry more time to prepare, we strongly encourage reconsideration of the ins and outs of the proposed rule, as its current version imposes unnecessary administration.