Canada Tax: Proposals on reporting of tax avoidance transactions released for public consultation

On 7 May 2010, the Canadian Minister of Finance released for public consultation proposals in respect of a reporting regime for certain tax avoidance transactions. Under these proposals, an avoidance transaction that bears at least two of the three following hallmarks would be required to be reported by a taxpayer to the Canada Revenue Agency (CRA):

- The promoter or tax advisor is entitled to fees that are attributable to the amount of, or contingent on the obtaining of, a tax benefit;
- The promoter or tax advisor requires confidential protection with respect to the transaction;
- The taxpayer obtains contractual protection in respect of the transaction.

The prescribed information return for reporting avoidance transactions would be required to be filed on or before the taxpayer's filing due date for the tax year in which the tax benefit arises. Promoters and tax advisors also would be required to file the prescribed information return. However, a complete disclosure by one of the parties would satisfy the obligations of each party.

A taxpayer would be subject to a penalty for failure to disclose a reportable transaction. A promoter or tax advisor would be jointly and severally liable for the penalty, up to the amount of related fees.

These proposals would apply to avoidance transactions entered into after 2010, as well as those that are part of a series of transactions commenced before 2011 and completed after 2010.

Interested parties are invited to provide comments on these proposals by 7 July 2010.