Howard L. Wasserman Tax Partner, Segal LLP

Disclosure Rules

On February 4, 2022, the Department of Finance released draft legislation covering a number of items. This article will focus on the mandatory disclosure rules and more specifically the notifiable transaction rules.

The expansion of disclosure rules was something that was first proposed in the 2021 federal budget (“Budget”). However, the draft legislation was never approved following the release of the Budget. Therefore, the government has released more detailed draft legislation covering additional items that had not been previously addressed.

Some of the key changes are as follows:

  1. The mandatory disclosure rules are expanded so that if any one of the three hallmarks noted below applies, it becomes a reportable transaction.
  2. A new concept of “notifiable transaction” has been introduced.
  3. A new concept of “uncertain tax” reporting has also been introduced.

Notifiable Transactions

This is the area that will affect people the most. This is a brand-new set of rules that are meant to notify the CRA of anything that it wants to be notified about. That is, the definition of a notifiable transaction is whatever the CRA says is a notifiable transaction. The CRA will be able to use this disclosure to focus its audit on those situations where there is CRA concern. The definition of a notifiable transaction is not in the legislation. Instead, a notifiable transaction will be identified by the CRA. In the February 4, 2022, release of draft legislation, the government gave a sample of notifiable transactions:

  1. Manipulating CCPC status to avoid anti deferral rules applicable to investment income. (This may be removed given the Budget 2022 proposals which eliminated the benefit of Non-CCPC’s.)
  2. Straddle loss creation transactions using a partnership.
  3. Avoidance of deemed disposal of trust property.
  4. Manipulation of bankrupt status to reduce a forgiven amount in respect of a commercial obligation.
  5. Reliance on purpose tests in section 256.1 to avoid a deemed acquisition of control.
  6. Back-to-back arrangements.

The details of each of these transactions is beyond the mandate of this article. However, the big take away is that the CRA is using these notifiable transactions to strike fear in taxpayers. Before these rules came out, it was up to the CRA to find these transactions and then audit. These rules will ensure that the CRA has a list of taxpayers to audit without having to find them.


The notifiable transactions must be reported within 45 days of the earlier of:

  1. the day the taxpayer becomes contractually obligated to enter into the transaction; and
  2. the day the taxpayer enters into the transaction.

Both of the above rules also apply to a person who entered into the transaction for the benefit of the taxpayer.

The actual forms with regard to notifiable transactions have not been provided by the CRA, but they will include enough information so that the CRA can do its own evaluation of the tax result of the transaction. There is nothing in the draft legislation or accompanying notes providing that any of the above transactions are contravening the legislation. Instead, they just want to be aware of it. It is also important to note that the notifiable transactions include those transactions that are “substantially similar” to the transactions noted above. The proposals even go a step further and say “substantially similar is to be interpreted broadly in favour of disclosure”. In other words, when in doubt, the CRA is expecting you to disclose.

Reportable Transactions

Before these rules were introduced, there was one set of disclosure rules called the mandatory disclosure rules in section 237.3 of the Income Tax Act to report “reportable transactions”. This is an area that many people have never had anything to do with. In order to fit into the previous mandatory disclosure rules, a transaction had to have two of the three following hallmarks:

  1. contingent fees payable;
  2. a non-disclosure agreement that prohibits disclosure of the details of the transaction or plan; and
  3. transactual protection – this is any form of insurance or protection, indemnity, or guarantee or anything else that protects a person against failure of the plan.

If two of those three conditions were met, then an information return was required to be filed – RC312. The due date of this form was June 30th of the calendar year following the calendar year in which the transaction first became a reportable transaction. Therefore, if a taxpayer completed a transaction on January 1, 2019, the CRA did not find out about it until June 30, 2020.

For any reportable transaction, there is now the requirement that the taxpayer, or the person who enters into the transaction on behalf of the taxpayer, report the transaction. In a situation where the taxpayer has advisors or other professionals that enter into the transaction, it is those advisors and other professionals who would be responsible for reporting the transaction. If there is a situation where solicitor / client privilege applies, then the lawyer would not be the one responsible to report the transaction. However, the taxpayer would still have this responsibility.

One thing that has changed from the Budget 2021 announcement is that the hallmark of contractual protection noted above would not apply where the insurance is “offered in the context of normal commercial transactions to a wide market”. In other words, it is a normal type of professional insurance, which would not meet one of the hallmarks. If the insurance was specifically for the transaction to make sure that a taxpayer did not lose money, then the rules would still apply.

One kind of transaction to be aware of is where a taxpayer hires an advisor for Scientific Research and Experimental Development (SR&ED) planning. It is very common that the SR&ED advisor would receive a percentage of the tax savings. In that case, there is a contingent fee. This kind of transaction would, in my opinion, need to be reported.

One of the other key changes is the timing of the reporting. As noted above, under current legislation, there could be as much as 18 months difference between the timing of the transaction and the reporting. Under the proposed rules, an information return disclosing the information related to the reportable transaction would have to be filed within 45 days of the earlier of:

  1. the day the person becomes contractually obligated to enter into the transaction; and
  2. the day that the person actually enters into the transaction.

In the case noted above, it is very common for the SR&ED advisor to enter into an agreement to provide a service later on in the year. Once that agreement is entered into, the taxpayer has 45 days to notify the CRA. This could easily be missed. See the discussion on penalties, below, for the implication of filing late.

Uncertain Tax Reporting

This reporting requirement will not be as widely applicable as reportable transactions and notifiable transactions. This kind of reporting will apply to the following corporations:

  1. a corporation that has audited financial statements with IFRS or corporations listed on a non-Canadian stock exchange that have country specific GAAP;
  2. where the carrying value of the corporations’ assets is at least $50M at the end of the taxation year; and
  3. the corporation is required to file a Canadian income tax return for the year.

Given the relatively strict rules, this will not be all that common. It is basically driven by the audit rules. If, pursuant to GAAP, a note is required with regard to uncertain tax treatment, the CRA wants to be notified about it. The due date for this notification is the same date as the due date of the corporation’s tax return.


The hammer that is held above the taxpayer’s head are the penalties. For reportable or notifiable transactions, the penalties are the greater of:

  1. $25,000; or
  2. 25% of the tax benefit.

These could be significant penalties if 25% of the tax benefit is large. For those corporations that are carrying assets of $50M or more, the first penalty goes up to $100,000. There are separate penalties for promotors which are quite burdensome. At the end of the day, the CRA is relying on taxpayers and advisors to notify them when there is something that they need to look at. This is something that exists in other countries, but it is new to Canada. The main effect of this is to scare taxpayers from carrying out transactions that they would have to disclose. It is important to note that disclosing the transaction does not mean that the taxpayer has in any way contravened the tax law. Instead, it just means that the CRA will now have a much easier time of finding and reviewing these transactions.

About the Author

Howard Wasserman has a wealth of experience in both Canadian and international tax matters. He provides valuable insight on owner-managed businesses, estate planning, international tax planning for corporations and individuals, postmortem planning, corporate reorganizations, mergers and acquisitions. Additionally, he has significant experience in dealing with Canada Revenue Agency on audits, appeals, negotiations and voluntary disclosures.

Well regarded as an expert in his field, Howard is a sought-out speaker. He has presented at the Canadian Tax Foundation, various local CPA associations, seminars and other conferences throughout Canada. He also started and runs his own successful tax series where he provides professional development training to hundreds of CPAs and CAs.

Howard is involved in the community as a volunteer for a nonprofit school, camp and youth organization.