Following legislative amendments requiring that certain transactions be disclosed to the Québec Revenue Agency, the Government of Québec issued an order identifying the first four transactions subject to mandatory disclosure for the purposes of the application of the definition of “specified transaction” (set out in the first paragraph of section 1079.8.1 and section 1079.8.6.3 of the Taxation Act). Here is a summary description of each transaction:
Transaction 1: Avoidance of deemed disposal of trust property
One of the goals of this type of transaction is to circumvent the avoidance of the deemed disposition rule for capital property of a trust on its 21st anniversary. Trusts subject to this rule include those that are resident in Québec and that dispose of, for less than its fair market value, capital property or land that, after the series of transactions, is held, directly or indirectly, by another trust.
Transaction 2: Payment to a non-treaty country
This type of transaction includes certain tax deductible payments of not less than $1,000,000 to a country with which the Government of Québec or of Canada has not entered into a tax agreement (or to a country with which the provisions of the agreement do not apply). The transaction must be disclosed 60 days before the filing due-date.
Transaction 3: Multiplication of the capital gains deduction
This type of transaction involves a transfer of funds by an individual to certain shareholders or persons with whom the individual does not deal at arm’s length following the disposition of a qualified small business corporation share by an individual (who is subject to tax under Part I of the Taxation Act) or a trust under which the individual is a beneficiary. The obligation to disclose applies to such transfer of funds under certain conditions.
Transaction 4: Tax attribute trading
Lastly, the order requires the disclosure of various transactions related to “tax attributes” that prevent the application of “attribute trading restriction” rules under sections 126.96.36.199 and following of the Taxation Act. Depending on the type of tax attribute, these restrictions can result in the limitation or denial of deductions for deferred losses or SR&ED expenditures. The transaction must be disclosed 60 days before the filing due-date.
Several additional conditions must be met for mandatory disclosure to apply to each type of transaction. Failure to comply with these new disclosure requirements will result in penalties.
To fully understand the consequences of this regulation, we invite you to contact our Tax team. They can help you consider them in your planning and thus avoid violating complex tax rules.