I-3, r. 2 - Mandatory Transaction Disclosure Regulation

Updated to 12 December 2023

This document has official status.

chapter I-3, r. 2

Mandatory Transaction Disclosure Regulation

Taxation Act

(chapter I-3, s. 1079.8.1, 1st par., “specified transaction” and 4th par. and s. 1079.8.6.3).

1. In this Regulation, unless the context indicates a different meaning,

“Act” means the Taxation Act (chapter I-3);

“associated group” of which a particular person in a taxation year of the person or a particular partnership in a fiscal period of the partnership is a member means all the persons and partnerships that are associated with each other in the taxation year of the particular person or fiscal period of the particular partnership, as the case may be;

“Minister” means the Minister of Revenue;

“specified transaction” has the meaning assigned by section 1079.8.1 of the Act;

“transaction” has the meaning assigned by section 1079.8.1 of the Act.

For the purposes of this Regulation,

(a)  the definition of “regulation” in section 1 of the Act is to be read as if “by the Government” were replaced by “by the Government or the Minister”;

(b)  the provisions of the Act, including Titles I and II of Book I of Part I of the Act, apply for the purpose of determining whether a transaction carried out by a person or a partnership is a specified transaction carried out by the person or partnership, and whether an information return must be filed by an advisor or a promoter pursuant to section 1079.8.6.3 of the Act in respect of a transaction the advisor or promoter commercializes or promotes.

For the purpose of determining whether a person or a partnership is a member of an associated group in a taxation year of a particular person or a fiscal period of a particular partnership, the following rules apply:

(a)  a business carried on by an individual, other than a trust, is deemed to be carried on by a corporation all the voting shares in the capital stock of which are owned by the individual at the time referred to in section 21.20 of the Act, referred to as the “particular time” in this paragraph;

(b)  a partnership is deemed to be a corporation whose taxation year corresponds to the partnership’s fiscal period and all the voting shares in the capital stock of which are owned at the particular time by each member of the partnership in a proportion equal to the agreed proportion in respect of the member for the partnership’s fiscal period that includes the particular time;

(c)  a trust is deemed to be a corporation all the voting shares in the capital stock of which:

i.  in the case of a testamentary trust under which one or more beneficiaries are entitled to receive all of the income of the trust that arose before the date of death of one or the last surviving of those beneficiaries, in this subparagraph c referred to as the “distribution date”, and under which no other person can, before the distribution date, receive or otherwise obtain the enjoyment of any of the income or capital of the trust:

(1)  are owned at the particular time by such a beneficiary, if that beneficiary’s share of the income or capital of the trust depends on the exercise by any person of, or the failure by any person to exercise, a power to appoint, and the particular time occurs before the distribution date; or

(2)  are owned at the particular time by such a beneficiary in a proportion equal to the proportion that the fair market value of the beneficial interest in the trust of the beneficiary is of the fair market value of the beneficial interests in the trust of all the beneficiaries, if subparagraph 1 does not apply and the particular time occurs before the distribution date;

ii.  in the case where a beneficiary’s share of the accumulating income or capital of the trust depends on the exercise by any person of, or the failure by any person to exercise, a power to appoint, are owned at the particular time by the beneficiary, unless subparagraph i applies and the particular time occurs before the distribution date;

iii.  in any case where subparagraph ii does not apply, are owned at the particular time by the beneficiary in a proportion equal to the proportion that the fair market value of the beneficial interest in the trust of the beneficiary is of the fair market value of all beneficial interests in the trust, unless subparagraph i applies and the particular time occurs before the distribution date; and

iv.  in the case of a trust referred to in section 467 of the Act, are owned at the particular time by the person referred to in that section from whom property of the trust or property for which property of the trust was substituted was directly or indirectly received.

For the purposes of the definition of “associated group” in the first paragraph, where it may reasonably be considered that one of the main reasons for the separate existence of 2 or more entities, each being a corporation, trust or partnership, in a taxation year or a fiscal period, as the case may be, is to have the entity avoid the obligation to disclose a specified transaction, the entities are deemed to be associated with each other in the year or fiscal period, as the case may be.

M.O. 2021-03-03, s. 1; M.O. 2022-06-15, s. 1.

2. For the purposes of the definition of “specified transaction” in the first paragraph of section 1079.8.1 of the Act and section 1079.8.6.3 of the Act, the transactions determined by the Minister are the transactions described in Schedule A.

For the purposes of the fourth paragraph of section 1079.8.1 of the Act, Schedule A sets forth, in respect of each specified transaction, the taxpayers subject to the disclosure obligation and, if applicable, the partnerships whose members are subject to that obligation, as well as the day on and after which that obligation applies.

M.O. 2021-03-03, s. 2.

3. (Omitted).

M.O. 2021-03-03, s. 3.

SCHEDULE A

(ss. 1079.8.1 and 1079.8.6.3)

TRANSACTION 1

AVOIDANCE OF DEEMED DISPOSAL OF TRUST PROPERTY

A transaction that includes the following facts is hereby determined by the Minister:

(a) a trust is resident in Québec at any time in the course of the transaction;

(b) the trust holds at that time a particular property that is a capital property or land included in the inventory of a business of the trust;

(c) the particular property is not exempt property;

(d) at a particular time in the course of the transaction, the trust distributes the particular property and is deemed to dispose of it for proceeds of disposition that are less than its fair market value immediately before that time;

(e) the disposition referred to in subparagraph d results in the trust not being deemed to dispose of the particular property under section 653 of the Act at the end of a day described in any of subparagraphs a to c of the first paragraph of that section 653, nor to reacquire the particular property immediately after that day; and

(f) after the particular time referred to in subparagraph d, a trust holds, directly or indirectly, the particular property or another property whose fair market value is derived, directly or indirectly, from the particular property, or so holds property substituted for the particular property or for the other property, as the case may be.

A trust that is a party to a specified transaction in relation to a transaction referred to in the first paragraph is required to disclose the specified transaction.

The obligation to disclose the specified transaction applies as of the day that includes the particular time referred to in subparagraph d of the first paragraph.

TRANSACTION 2

PAYMENT TO A NON-TREATY COUNTRY

A transaction that includes the following facts is hereby determined by the Minister:

(a) a particular person or a particular partnership in respect of which any of the following conditions is met is a party to the transaction:

i. in the case of a person, the person is subject to tax under Part I of the Act for a particular taxation year in which the transaction occurs;

ii. (subparagraph revoked);

iii. in the case of a partnership, each member of the partnership is required, under section 1086R78 of the Regulation respecting the Taxation Act (chapter I-3, r. 1), to file an information return for a particular fiscal period of the partnership in which the transaction occurs;

(b) (subparagraph revoked);

(c) another person that is not resident in Canada and with whom the particular person or the particular partnership or a member of the particular partnership, as the case may be, does not deal at arm’s length in the particular taxation year or particular fiscal period, as the case may be, or another partnership of which such other person is a member, is a party to the transaction, if

i. the other person at any time in the particular taxation year or particular fiscal period, as the case may be, is resident in a country with which the Government of Québec or of Canada at that time has not entered into a tax agreement; or

ii. the other partnership at any time in the particular taxation year or particular fiscal period, as the case may be, carries on a business in a country with which the Government of Québec or of Canada at that time has not entered into a tax agreement; and

(d) the particular person or the particular partnership deducts in computing income under Part I of the Act for the particular taxation year or particular fiscal period, as the case may be, a particular amount paid or payable to another person or another partnership referred to in subparagraph c, other than an amount paid or payable as consideration for the acquisition of corporeal property.

For the purposes of subparagraph c of the first paragraph, a person resident in a dependency, possession, department, protectorate or region of a country with which the Government of Québec or of Canada has entered into a tax agreement and to which the provisions of the tax agreement do not apply is considered to be resident in a country with which the Government of Québec or of Canada has not entered into a tax agreement.

For the purposes of the first paragraph, a person that is a member of a partnership that itself is a member of another partnership is deemed to be a member of that other partnership.

The particular person or the members of the particular partnership are required to disclose a specified transaction in relation to a transaction referred to in the first paragraph if the aggregate of all amounts, each of which is an amount meeting the following conditions, is at least equal to $1,000,000:

(a) it is a particular amount referred to in subparagraph d of the first paragraph; and

(b) it is deducted:

i. by the particular person or particular partnership in computing income for the particular taxation year or particular fiscal period, as the case may be; or,

ii. if the particular person or particular partnership is a member of an associated group in the particular taxation year or particular fiscal period, as the case may be, by another member of the associated group in computing income for that member’s taxation year or fiscal period that ends in the particular taxation year or particular fiscal period.

The obligation to disclose the specified transaction applies as of the day that is 60 days before the particular person’s filing due-date for the person’s particular taxation year or before the filing due-date of the member of the particular partnership for the member’s taxation year in which the particular fiscal period ends, as the case may be.

TRANSACTION 3

MULTIPLICATION OF THE CAPITAL GAINS DEDUCTION

A transaction that includes the following facts is hereby determined by the Minister:

(a) an individual subject to tax under Part I of the Act, a trust or a partnership disposes of a share of the capital stock of a Canadian-controlled private corporation;

(b) the share is a qualified small business corporation share;

(c) in respect of the disposition, the individual deducts an amount under section 726.7.1 of the Act in computing taxable income for a taxation year; and

(d) either of the following conditions is met:

i. the individual transfers or loans, directly or indirectly, in any manner whatever, including by means of a trust or a corporation, or by repayment of existing indebtedness, an amount that may reasonably be considered to be, directly or indirectly, part or all of the proceeds of the disposition of the share, to either

(1) a particular person that is a shareholder of the corporation referred to in subparagraph a or would be such a shareholder if section 21.18 of the Act applied and were read without reference to “specified”, wherever that term appears, or that was previously such a shareholder of the corporation; or

(2) a person that does not deal at arm’s length with the particular person; or

ii. the individual acquired a share of a person who is the individual’s spouse as part of a transfer referred to in section 454 of the Act and a valid election under the second paragraph of that section 454 was made by the individual’s spouse, with the result that the provisions of section 454 do not apply to the transfer.

For the purposes of the first paragraph, an individual who expressly or implicitly undertook to transfer or loan part or all of the proceeds of the disposition of a share is deemed to have made the transfer or loan at the time of the undertaking.

The individual referred to in subparagraph c of the first paragraph is required to disclose a specified transaction in relation to a transaction referred to in the first paragraph.

The obligation to disclose the specified transaction applies as of,

(a) if subparagraph i of subparagraph d of the first paragraph applies and:

i. the day of the transfer or loan is before the day on which the share referred to in subparagraph a of that paragraph is disposed of, the day of the disposition; or

ii. the day of the transfer or loan is the day on which the share referred to in subparagraph a of that paragraph is disposed of or is later than that day, the day of the transfer or loan; or

(b) if subparagraph ii of subparagraph d of the first paragraph applies, the day on which the share referred to in that subparagraph ii is acquired.

TRANSACTIONS 4

TAX ATTRIBUTE TRADING

The following transactions are hereby determined by the Minister:

(a) a transaction in relation to a tax attribute, contemplated by the definition of “attribute trading restriction” in section 21.4.2.1 of the Act, that is generated in respect of a taxpayer, referred to in this subparagraph as the “initial taxpayer”, other than a tax-exempt taxpayer, as part of the transaction or before the beginning of the transaction, if the transaction includes the following facts:

i. a particular taxpayer is subject to tax under Part I of the Act at a particular time in the transaction; and

ii. the particular taxpayer uses the tax attribute generated in respect of the initial taxpayer;

(b) a transaction in relation to a tax attribute, contemplated by the definition of “attribute trading restriction” in section 21.4.2.1 of the Act, that is generated in respect of a corporation or a trust, referred to in this subparagraph as the “specific taxpayer”, other than a tax-exempt taxpayer, as part of the transaction or before the beginning of the transaction, if the transaction includes the following facts:

i. a person or a partnership, referred to as the “purchaser” in this paragraph and in the fourth paragraph, acquires, directly or indirectly in any manner whatever:

(1) if the specific taxpayer is a corporation, a share of the capital stock of the specific taxpayer or a right referred to in paragraph b of section 20 of the Act relating to such a share; or

(2) if the specific taxpayer is a trust, a capital interest or an income interest in the specific taxpayer or a right, whether immediate or future and whether absolute or contingent, to such an interest;

ii. the specific taxpayer is subject to tax under Part I of the Act at a particular time in the transaction;

iii. the specific taxpayer uses the tax attribute;

iv. if the specific taxpayer carried on a business before the beginning of the transaction, any of the following conditions is met:

(1) the specific taxpayer ceases to carry on the business or begins to carry on a new business as part of the transaction;

(2) the specific taxpayer, in the course of the transaction, earns income from property the taxpayer acquired as part of the transaction, or held immediately before the beginning of the transaction and was not using to earn income from property at that time; or

(3) the specific taxpayer realizes a capital gain from the disposition of property acquired as part of the transaction;

v. the use of the tax attribute to which subparagraph iii refers is one of the results derived, directly or indirectly, from the acquisition by the purchaser of the share, the right to a share, an interest or the right to an interest referred to in subparagraph i, or from the transfer or loan of property to the specific taxpayer, as part of the transaction, by the purchaser or by a person or partnership with which the purchaser does not deal at arm’s length at the time of the transfer or loan.

For the purposes of subparagraph ii of subparagraph a of the first paragraph and subparagraph iii of subparagraph b of that paragraph, a taxpayer that is a member of a partnership that generates or uses a tax attribute is deemed to generate or use the tax attribute.

For the purposes of subparagraph a of the first paragraph, “tax-exempt taxpayer” means

(a) a taxpayer in respect of which section 21.0.6 of the Act applies in the course of the transaction in relation to the tax attribute referred to in that subparagraph a; and

(b) a taxpayer with which the particular taxpayer is affiliated throughout the period that begins immediately before the beginning of the transaction and ends at the time of the last use of the tax attribute in connection with the transaction.

For the purposes of subparagraph b of the first paragraph, “tax-exempt taxpayer” means:

(a) a taxpayer in respect of which section 21.0.6 of the Act applies in the course of the transaction in relation to the tax attribute referred to in that subparagraph b;

(b) a taxpayer with which each of the purchasers is affiliated throughout the period that begins immediately before the beginning of the transaction and ends at the time of the last use of the tax attribute in connection with the transaction.

For the purposes of subparagraph b of the third and fourth paragraphs, the following rules apply:

(a) a corporation, trust or partnership that is constituted or begins to exist, otherwise than by reason of an amalgamation or merger, at a particular time as part of the transaction is deemed to have existed throughout the period that begins immediately before the beginning of the transaction and ends at the time immediately preceding the particular time and to have had throughout that period the same shareholders, beneficiaries or members, as the case may be, as those it has at the particular time, those shareholders, beneficiaries or members being deemed to hold, throughout that period, the shares of the capital stock of the corporation, interests in the trust or in the partnership, as the case may be, they hold at the particular time;

(b) where, at a particular time, 2 or more particular corporations amalgamate or merge to form a new corporation and the new corporation and the particular corporations would have been affiliated with each other throughout the period that begins immediately before the beginning of the transaction and ends at the time immediately preceding the particular time, if, throughout that period, the new corporation had existed and had had the same shareholders as those it has at the particular time, the new corporation is deemed to have existed throughout that period and to have had, throughout that period, the same shareholders as those it has at the particular time, those shareholders being deemed to hold, throughout that period, the shares of the capital stock of the corporation they hold at the particular time;

(c) section 21.0.4 of the Act does not apply.

The particular taxpayer referred to in subparagraph a of the first paragraph is required to disclose a specified transaction in relation to a transaction referred to in that subparagraph a.

The specific taxpayer, within the meaning of subparagraph b of the first paragraph, is required to disclose a specified transaction that relates to a transaction referred to in that subparagraph b.

The obligation to disclose the specified transaction in relation to a transaction referred to in subparagraph a of the first paragraph applies as of the day that is 60 days before the particular taxpayer’s filing due-date for the first taxation year in respect of which the particular taxpayer uses the tax attribute referred to in that subparagraph a.

The obligation to disclose the specified transaction in relation to a transaction referred to in subparagraph b of the first paragraph applies as of the day that is 60 days before the specific taxpayer’s filing due-date for the first taxation year in respect of which the specific taxpayer uses the tax attribute referred to in that subparagraph b.

M.O. 2021-03-03, Sch. A; M.O. 2022-06-15, ss. 2, 3 and 4.

REFERENCES

M.O. 2021-03-03, 2020 G.O. 2, 1031

M.O. 2022-06-15, 2022 G.O. 2, 2088