The revised mandatory disclosure rules create new filing obligations for taxpayers, advisors and promotors.
At the end of June, the revised mandatory disclosure rules came into effect. These rules are comprised of three sections which, at a high level, are:
- Reportable Transactions: A transaction or series intended to obtain a tax benefit where at least one of three hallmarks is present.
- Notifiable Transactions: Designated transactions and series, and substantially similar transactions and series.
- Reportable Uncertain Tax Treatment: Uncertainty appearing on the audited financial statements of certain corporations.
For more information on the new rules including filing deadlines and implications for late or non-filing, refer to our previous release Revised mandatory disclosure rules create new tax reporting requirements. Note that failure to file these forms includes substantial penalties for non-compliance for both taxpayers and advisors alike.
New forms launched to report mandatory disclosures
The RC312 is used to report reportable and notifiable transactions. If the filer is disclosing just a reportable transaction, the filer will complete Part 4 – Reportable Transactions. The filer must include a description of the reportable transaction and the expected tax treatment, the relevant hallmark, names of advisors/promotors involved, the amount and nature of the tax benefit and other requested information.
In all other cases, the filer will complete Part 3 - Notifiable Transactions. The filer must indicate the relevant designated transaction or series, the date of the notifiable transaction and to what years the tax benefit from the transaction will apply, and briefly describe why the transaction is being disclosed.
A recurring tax benefit from reportable or notifiable transaction should only be reported once if it is the same tax benefit that recurs and there are no new transactions.
The RC3133 is used to disclose reportable uncertain tax treatment (RUTT). The filer fills out a chart providing the following information for each RUTT:
- Tax year to which RUTT pertains
- Applicable legislation and legislative provision(s)
- RUTT amount
- Whether the RUTT is a temporary or non-temporary difference
- Does the RUTT involve
- tax attributes, such as paid-up capital
- property valuation
- a cross-border transaction or non-resident entity?
- Description of the relevant facts and tax treatment taken.
- Whether there have been any CRA official filings (e.g. notice of objection) related to the RUTT; and
- Whether an RC312 filed in respect of the RUTT
Where a corporation’s financial statements are prepared on a consolidated basis, information about the entity with the relevant financial statements must be provided, including its Tax Identification Number. This may require entities to obtain a Tax Identification Number for the purposes of allowing related entities to fulfill their RUTT reporting requirements.
Insight on the new forms
The Canada Revenue Agency (CRA) has incorporated feedback from the tax community to make the forms easier to understand and more reasonable to complete within the afforded timeline. However, there are still portions of the forms which will require guidance from the CRA. The volume of information requested in Part 4 of RC312 is akin to a tax audit information request. Further, it would be beneficial to receive clarification on the expected level of accuracy on the amount of the tax benefit which may be difficult to ascertain at the time of filing. As with all new legislation and reporting forms, there are some expected adjustments as the CRA, tax practitioners, and taxpayers have the opportunity to have practical experience with the new forms and rules.
Taxpayers who may have reporting requirements under the new mandatory disclosure rules should review these forms carefully. Failure to file the required forms could result in monetary penalties and extended periods for the CRA to reassess the taxpayer. The taxpayer should also consider consulting with other entities, such as their advisors, who are required to report the same transactions to ensure consistent reporting.