Article written by Nicolas Déziel, M. Fisc. and Martin Gaudet CPA, LL.M Fisc. by Marcil Lavallée, in Canadian News Quarterly, a newsletter published by
canadian member firms
of
Moore North America
. This article on specific transaction disclosure rules is part of our mission to be your partner in success by keeping you informed. If you own a business, thinking about succession now could be a good idea.
Regulation respecting mandatory disclosure of designated or specified transactions
Since 2021, taxpayers have been required to disclose their designated transactions to Revenu Québec. A designated transaction may be an arrangement, an event or a series of transactions whose form and substance are similar to those determined by the Québec government.
Revenu Québec
To date, the first 4 operations have been published. Revenu Québec has also announced excluded transactions, which are transactions or series of transactions that are not covered by the specified transactions.
Multiplying the capital gains deduction
In general, the determined operation targets the following two types of planning :
- A person uses accommodators to benefit several times from the DGC, in particular through a trust, and has part or all of the accommodators’ earnings returned to him or her;
- The shareholder’s spouse is brought into the shareholding in order to multiply the DGC claimed by manipulating the rules of attribution between spouses.
Note that Revenu Québec considers the transfer to a taxpayer of an amount equal to or less than the non-taxable portion of the realized capital gain to be an excluded transaction.
Trade in tax attributes
In general, this operation is aimed at the following plans:
- The use of tax attributes (such as operating losses, tax credit carryforwards or scientific research and experimental development expenditure balances) of one taxpayer by another taxpayer, other than a person who would be affiliated with the taxpayer immediately prior to the commencement of the series of transactions.
- The use of tax attributes by a corporation or trust at a loss, following its capitalization by a third party, notably in order to operate a new business when there is a link between this capitalization and the use of the tax attributes of the corporation or trust at a loss.
Once again, Revenu Québec has disclosed certain excluded transactions, including the use of tax attributes generated in respect of a taxpayer by another taxpayer who is related to the original taxpayer immediately prior to the commencement of the series of transactions.
Avoidance of deemed disposition of trust property
In general, the specified transaction targets plans that are put in place to circumvent the deemed disposition and thus defer tax on the accrued gain.
Payment to a non-agreement country
In general, a specified transaction refers to one or more payments made in a year by a person or partnership to another non-arm’s length entity in a jurisdiction that does not have a tax treaty with Canada, in an amount totalling $1,000,000 or more.
Disclosure obligation
“Any taxpayer who has entered into a confidential transaction, a contingent compensation transaction, a contractually protected transaction or a designated transaction, or who is a member of a partnership that has entered into such a transaction, must disclose it to us (mandatory disclosure). ” – Revenu Québec.
Finally, taxpayers, advisors and promoters must disclose specified transactions within the prescribed timeframe using Revenu Québec forms (TP-1079.CP and TP- 1079.DI). You have a duty of disclosure. Failure to disclose has serious consequences.
If you are in a situation where you have disclosure obligations, don’t hesitate to contact our tax experts, who will be able to enlighten you and guide you through the process.
