Finance Canada releases final legislation on Mandatory Reporting

As previously reported, revised Mandatory Reporting rules were included in the Notice of Ways and Means Motion that was released on April 17, 2023. Although some uncertainties and concerns remain, the revised rules take into account some issues and concerns raised by the Joint Committee on Taxation of the Canadian Bar Association (CBA) and CPA Canada and other stakeholders. With respect to the rules for reportable and notifiable transactions, the changes in the draft legislation include the following:

For both reportable and notifiable transactions:

  • Effective date – under the revised rules, the reporting requirement and the penalty rules apply for transactions entered into after the date the legislation receives royal assent.
  • Reporting timeline – Where transactions are reportable, the reporting must be done within 90 days (up from the previous 45-day timeline).
  • Joint and several liability for penalties eliminated for both reporting requirements – For reportable transactions, subsection 237.3(9) will be repealed given that multiple persons may be required to report. Similarly, proposed subsection 237.4(16) from the August 2022 version of the draft legislation on notifiable transactions has been dropped.

For reportable transactions:

  • Contractual protection and business sales – Certain indemnity clauses in purchase and sale agreements will not be considered contractual protection if they were intended to ensure that the purchase price reflects liabilities prior to the closing date and were not given to achieve tax benefits.
  • SR&ED contingency fees – The reportable transaction rules have been amended so that contingent fees related to SR&ED filings under subsection 37(11) will not trigger the fee hallmark.
  • Fee hallmark concerns for reportable transactions – Although no changes were made to the legislation, commentary has been added to the explanatory notes to highlight that “value billing” and other similar billing practices will generally not trigger the fee hallmark. See the explanatory notes for further information.

For notifiable transactions:

  • Reasonable expectation to know” rules for notifiable transactions – The exclusion that applied to the financial sector in the August 2022 draft legislation has been broadened to include advisors and other persons. Reporting will not be required in respect of a notifiable transaction, unless the person knows, or should reasonably be expected to know, that the transaction was a notifiable transaction.

We will continue to provide updates as new information becomes available.

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