November 7, 2023
Canada Revenue Agency publishes anticipated list of designated notifiable transactions
On 1 November 2023, the Canada Revenue Agency (CRA) published an initial list of notifiable transactions that are relevant to the application of new information reporting requirements.
The reporting requirements for notifiable transactions were introduced as part of Canada's enhanced mandatory disclosure rules, enacted on 22 June 2023, and are intended to provide the CRA with pertinent information relating to tax avoidance transactions that the CRA has found to be abusive and other transactions of interest on a timely basis. For more information on who is subject to the new filing requirements, see EY Global Tax Alert, Canada's new mandatory disclosure rules now in effect, dated 24 July 2023.
For purposes of these reporting requirements, a notifiable transaction is defined as a transaction that is the same as, or substantially similar to, a transaction designated by the Minister of National Revenue with the concurrence of the Minister of Finance. Similarly, it also means a transaction in a series of transactions that is the same as, or substantially similar to, a series of transactions designated by the Minister of National Revenue with the concurrence of the Minister of Finance.
Effective 1 November 2023, the following transactions and series of transactions are designated as notifiable transactions for the purposes of section 237.4 of the Income Tax Act (Act):
The designated transactions (and series of transactions), which are specified and described in more detail on the CRA web page, Notifiable transactions designated by the Minister of National Revenue, align with five (of the six) sample notifiable transactions identified in the Department of Finance Backgrounder that was released for consultation on 4 February 2022. The initial list of designated transactions (and series of transactions) released on 1 November 2023 does not include transactions or series of transactions pertaining to the manipulation of Canadian-controlled private corporation status to avoid anti-deferral rules applicable to investment income, which had been identified in the 4 February 2022 Backgrounder.
As indicated above, the reporting requirements apply not only to the designated transactions (and series of transactions), but also to transactions (and series of transactions) that are substantially similar to a designated transaction (or series of transactions). Under an interpretive rule in subsection 237.4(2) of the Act, two transactions (or series of transactions) will be considered substantially similar if they are expected to obtain the same or similar types of tax consequences and are either factually similar or based on the same or similar tax strategy. The substantially similar test should be interpreted broadly in favor of disclosure so that the requirement to report is not frustrated by a slight variation in the tax consequences, facts or strategy.
Future updates to the list of notifiable transactions
To obtain automatic updates relating to the list of notifiable transactions, taxpayers may subscribe to a new electronic mailing list that the CRA has set up for notifiable transactions. Individuals can subscribe to the mailing list to receive notifications when a new notifiable transaction has been designated by the Minister of National Revenue with the concurrence of the Minister of Finance. Subscribers may also receive other related updates to the mandatory disclosure rules.
For additional information with respect to this Alert, please contact the following:
Ernst & Young LLP (Canada)
Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor