Rules for Disclosure of Determined Transactions
Written by Nicolas Déziel Belleville, M. Fisc. and Martin Gaudet, CPA, LL. M. Fisc. from Marcil Lavallée for the Canadian Overview of Q3 2022. A newsletter published by Canadian member firms of Moore North America. This article about rules of disclosure of determined transaction is part of our mission to become partner of your success by keeping you informed of the news.
Since 2021, taxpayers must disclose to Revenu Québec the specified transactions they have carried out. A specified transaction may be an arrangement, an event, or a series of transactions where the form and substance of the facts specific to the taxpayers are similar to the transactions determined by the Government of Quebec.
At of yet, the first four determined transactions have been published. Revenu Québec has also announced transactions or series of transactions to be excluded from the targeted specified transactions.
1. Multiplication of the capital gains deduction
In general, the determined transaction targets the following two types of planning strategies:
a) A person uses accommodators to claim multiple capital gains deductions, often through a trust, and receives all or part of the accommodators’ gains.
b) The shareholder’s spouse becomes a shareholder in order to claim multiple capital gains deductions by manipulating the attribution rules between spouses.
Note that the transfer to a taxpayer of an amount equal to or less than the non-taxable portion of the realized capital gain is an excluded transaction in accordance with Revenu Québec.
2. Tax attribute trading
Generally, the determined transaction targets the following planning strategies:
- The use of one taxpayer’s tax attributes (such as operating losses, tax credits that can be carried forward, or the balance of scientific research and experimental development expenses) by another taxpayer that is not affiliated with the taxpayer immediately prior to starting the series of transactions.
- The use, resulting in a loss, of tax attributes by a corporation or trust further to its capitalization by a third party in order to carry on a new business, if there is a relationship between the capitalization and the use of the corporation’s or trust’s tax attributes.
Again, Revenu Québec has disclosed certain excluded transactions, such as the use of tax attributes generated in respect of a taxpayer by another taxpayer that is related to the original taxpayer immediately before the series of transactions began.
3. Avoidance of deemed disposal of trust property
Generally, the determined transaction targets planning strategies used to get around the deemed disposition and postpone taxation of the accumulated gain.
4. Payment to a non-treaty country
In general, the determined transaction targets one or more payments, totaling $1,000,000 or more during the year, which are made by a person or partnership to an entity with which it is not dealing at arm’s length, and which is located in a jurisdiction that has not entered a tax treaty with Canada.
“A taxpayer is required to disclose a transaction carried out by the taxpayer or by a partnership of which the taxpayer is a member in the following cases: the transaction is a confidential transaction, a transaction involving conditional remuneration, a transaction with contractual coverage or a specified transaction.” – Revenu Québec.
Finally, determined transactions must be disclosed within the prescribed time frame by taxpayers, advisors and promoters using the forms (TP-1079.CP and TP-1079.DI) from Revenu Québec. Any failure to disclose them carries significant consequences.
If your situation requires you to disclose determined transaction, don’t hesitate to contact our Tax experts. They will be able to help and guide you in your process.