Aug 16th, 2023
May 26th, 2021
By Martin Bédard
Under Bill 42, the Quebec government has introduced new disclosure requirements for taxpayers involved in "specified transactions".
On March 17, the first four "specified transactions" that will be subject to these new disclosure requirements were announced:
This transaction essentially refers to any transaction or series of transactions by which a taxpayer or taxpayers avoid a deemed disposition of trust property, which could occur on, for example, the 21st anniversary of the trust. The transaction in question must involve a distribution of trust property, followed by the holding by another trust of that same property, substituted property or property that derives its value from the distributed property.
This operation is primarily aimed at multinationals making intra-corporate money transfers to low-tax jurisdictions.
The payment covered by this transaction must total at least one million dollars ($1M) during the same taxation year by a Quebec resident to a person with whom the resident does not deal at arm's length and who resides in a country with which Canada or Quebec does not have a tax treaty. Note that Revenu Québec has specified that a tax treaty for the purposes of the definition of this transaction does not include a tax information exchange agreement.
In addition, this transaction applies to a payment described above when it is made by a corporation that has a permanent establishment in Quebec or by a partnership all of whose members are required to file an information return with Revenu Québec in the year of the payment, or by a trust or individual resident in Quebec.
Finally, the person making the payment must deduct it in computing income to the extent of one million dollars ($1 million) or more per taxation year, unless the payment was made in consideration for the acquisition of tangible property.
This transaction addresses two situations related to the sale of eligible small business shares and the claiming of several capital gains deductions. As Revenu Québec writes:
It should be noted that in the first scenario, Revenu Québec could consider that the proceeds from the sale of the shares were returned to the entrepreneur in various ways, for example if one of the beneficiaries made a transfer, a gift, a loan, or proceeded to an injection of capital into the corporation.
The transactions target plans that avoid the rules that restrict the use of certain tax attributes on the acquisition of control of a corporation or trust between persons who are not affiliated. As Revenu Québec writes:
An important criterion for the transaction to be covered is that one of the following two conditions is met:
The effect of this test should be that the disclosure requirement does not apply to the acquisition by one corporation of another corporation whose business it will continue to operate.
The disclosure must be made using the prescribed form. The taxpayers involved in the transactions subject to the disclosure requirement and the deadlines for submitting the form vary from one transaction to another. Generally, the deadline is :
Please note that this article is only an overview of the rules related to specified transactions. Therefore, if you wish to know more about these transactions, the disclosure terms and conditions, or the penalties applicable in the event of non-compliance with these disclosure obligations, do not hesitate to contact our team of tax lawyers.