New reporting requirements: reportable transactions

On June 26, 2013, the Government of Canada passed legislation requiring disclosure of reportable transactions to the Canada Revenue Agency (CRA). The legislation addresses concerns about how aggressive tax avoidance transactions affect the fairness of the income tax system – everyone must pay the correct amount of taxes.

What is a reportable transaction?

A reportable transaction is a specific type of tax avoidance transaction ^{Footnote 1} or, in other words, any transaction undertaken alone or as part of a series of transactions, in order to avoid paying taxes. Reportable transactions are entered into by, or for the benefit of, a person and they have at least two of the following three features or “hallmarks”:

1. The promoter or advisor, including any non-arm's-length party (referred to collectively as “promoter or advisor”), is entitled to a fee that is:
   1. based on the amount of the tax benefit from the transaction;
   2. contingent upon obtaining a tax benefit that results from the transaction; or
   3. attributable to the number of persons participating in the transaction (or similar transaction) or who have been provided access to advice from the promoter or advisor about the tax consequences of the transaction (or similar transaction).
2. The promoter or advisor of the transaction obtains “confidential protection” ^{Footnote 2} for the transaction.
3. The taxpayer, the person who entered into the transaction on behalf of the taxpayer (including any non-arm's-length party), or the promoter or advisor has or had “contractual protection” ^{Footnote 3} for the transaction (other than as a result of a fee described in the first hallmark).

A reportable transaction does not include a transaction that is, or is part of a series of transactions that includes, the acquisition of a tax shelter or the issuance of a flow-through share for which an information return has been filed with the Minister.
The new legislative requirements apply to reportable transactions entered into after December 31, 2010 and reportable transactions that are part of a series of transactions entered into before January 1, 2011 and completed after December 31, 2010.

To whom do the new reporting requirements apply?

Under the new legislation, a person (including an individual, corporation, trust, or partnership) must disclose a reportable transaction by filing an information return with the CRA. This reporting requirement also applies to any person who enters into such a transaction for the benefit of another person.
If one or more promoters or advisors are entitled to fees as described in the hallmarks for a particular transaction, each of these promoters or advisors must also file an information return with the CRA.

What is the process for reporting a reportable transaction?

Form RC312, Reportable Transaction Information Return, must be filed on or before June 30 of the calendar year following the calendar year in which the transaction first became a reportable transaction. It must be filed separately from any information return, including an income tax return.
For information returns that must be filed before July 1, 2012, (that is, for the 2010 and 2011 calendar years), Form RC312 must be filed before October 23, 2013. For the 2012 calendar year, the CRA will administratively extend the filing due date of the RC312 to October 23, 2013.
Disclosing a reportable transaction will have no bearing on whether the tax benefit is allowed under the Income Tax Act. Form RC312 is filed for administrative purposes and is not an admission that the General Anti-Avoidance Rule (GAAR) applies to any transaction or that any transaction is part of a series of transactions. Similarly, it does not mean that the CRA agrees with the intended tax consequences or benefits of the transaction.

What are the consequences of not reporting a reportable transaction?

Penalty for not reporting

If a Form RC312 for a reportable transaction is not filed when required, each person who has to file this form will be liable to pay a penalty, notwithstanding any agreement between the parties as to who is going to file the return. The amount of the penalty is equal to the total of all the fees for the transaction that the promoter or advisor is entitled to receive (these fees are described in the first and third hallmarks under “What is a reportable transaction” on the previous page). A promoter or advisor is liable to pay a penalty only to the extent of the fees to which he or she is entitled.

Suspension of the tax benefit

In addition to the penalty, the tax benefit is denied until the obligation to file Form RC312 has been satisfied and the penalty and interest have been paid.

Due diligence

A person required to file a Form RC312 for a reportable transaction will not be liable for a penalty for not filing that information return if that person has exercised the degree of care, due diligence, and skill that a reasonably prudent person would have exercised in similar circumstances.

Extended reassessment period

For taxation years ending after March 20, 2013, new legislation, introduced in Economic Action Plan 2013, requires that:

• where Form RC312 has not been filed as required, the reassessment period is extended by three years after the date, if any, that the information return has been filed; and
• a waiver of this extended reassessment period may be filed with the CRA within this additional three-year period.

Economic Action Plan 2013 also proposes to limit the scope of an assessment, reassessment, or additional assessment of a taxpayer's taxation year during the extended reassessment period to what can reasonably be regarded as relating to the tax benefit. This budget measure is not included in the technical bill. It will be introduced in Parliament at a later date.

More information

Form RC312, Reportable Transaction Information Return, is also available on the CRA's Web site.

Footnotes

Footnote 1

A “tax avoidance transaction” means any transaction that would result, directly or indirectly, in a tax benefit, unless the transaction may reasonably be considered to have been undertaken or arranged primarily for bona fide purposes other than to obtain the tax benefit (section 245 of the Income Tax Act).

Return to footnote 1 referrer

Footnote 2

“Confidential protection,” in respect of a transaction or series of transactions, means anything that prohibits the disclosure, to any person or to the Minister, the details or structure of the transaction or series under which a tax benefit results (not the same as client-solicitor privilege).

Return to footnote 2 referrer

Footnote 3

“Contractual protection” refers to any form of insurance (other than standard professional liability insurance) or other protection, including, without limiting the generality of the foregoing, an indemnity, compensation, or a guarantee that, either immediately or in the future and either absolutely or contingently:
(i) protects a person against a failure of the transaction or series to achieve any tax benefit from the transaction or series; or
(ii) pays for or reimburses any expense, fee, tax, interest, penalty, or similar amount that may be incurred by a person in the course of a dispute about a tax benefit from the transaction or series; and
any form of undertaking provided by a promoter, or by any person who does not deal at arm's length with a promoter that provides, either immediately or in the future and either absolutely or contingently, assistance, directly or indirectly in any way, to a person in the course of a dispute about a tax benefit from the transaction or series.

Canada Revenue Agency

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Timmins man fined $12,000 for not filing tax returns

Timmins, Ontario, August 29, 2013 … The Canada Revenue Agency (CRA) announced today that on August 28, 2013, Marc Richard of Timmins, Ontario, pleaded guilty, in the Ontario Court of Justice in Timmins, to12 counts of failing to file personal and corporate tax returns. He was fined $1,000 per count, for a total of $12,000. He has twelve months to pay the fine.

Richard pleaded guilty to two counts of failing to file his 2009 and 2010 personal income tax returns. In addition to not filing his own income tax returns, Richard, as corporate director, also pleaded guilty to not filing corporate returns for Timmins Retirement Homes Ltd from 2007 to 2010, Porcupine Leasing Corporation from 2007 to 2009 and RND Holdings and Property Management Ltd from 2003 to 2005. All outstanding returns have since been filed.

The preceding information was obtained from the court records.

When taxpayers or corporations are convicted of failing to file tax returns, in addition to any fines imposed by the courts, they are still obligated to file the tax return and pay the full amount of taxes owing, plus interest, as well as any civil penalties that may be assessed by the CRA.

Taxpayers who have not filed returns for previous years, or who have not reported all of their income, can still voluntarily correct their tax affairs. They may not be penalized or prosecuted if they make a valid disclosure before they become aware of any compliance action being initiated by the CRA against them. These taxpayers may only have to pay the taxes owing, plus interest. More information on the Voluntary Disclosures Program (VDP) can be found on the CRA's website at www.cra.gc.ca/voluntarydisclosures

Further information on convictions can also be found in the Media Room on the CRA website at
www.cra.gc.ca/convictions

Canada Revenue Agency

This a a reproduction copy of an official work that is published by the Government of Canada and that the reproduction has not been produced in affiliation with, or with the endorsement of the Government of Canada.

Harper Government highlights continued support for Canadian small businesses

Kitchener, Ontario, August 28, 2013... The Honourable Kerry-Lynne D. Findlay, P.C., Q.C., M.P., Minister of National Revenue, and Peter Braid, Member of Parliament for Kitchener, participated in an event and roundtable discussion with high-tech industry business owners at Communitech Hub to highlight the important tax relief and other measures available to Canadian small businesses. These incentives help small businesses across Canada to create jobs and economic growth.

The Apprenticeship Job Creation Tax Credit (AJCTC) is one of the Harper Government’s key measures aimed at providing support to Canadians, including programs and services for those entering the labour market and those looking to upgrade their skills and training. The AJCTC provides businesses a maximum credit of $2,000 per year for the first two year term of hire for each eligible apprentice. The Government also recognizes the importance of supporting the job creation capacity of small businesses by giving them additional incentives to hire new apprentices in eligible trades. As of October 1, 2012, approximately 13,250 employers used the credit to deduct more than $108 million on their income tax returns for the last tax year.

“Our Government has made real progress in offering tax relief measures that support a more skilled and educated workforce. These initiatives are helping Canada build a strong foundation for future economic growth and job creation,” said Minister Findlay. “Through tax relief measures, grants and support for training programs, we are encouraging apprenticeships and careers in the skilled trades.”

Economic Action Plan 2011 introduced the Hiring Credit for Small Business (HCSB).The HCSB stimulates new employment and supports small businesses, while providing relief from the employer’s share of employment insurance (EI) premiums by crediting up to $1,000 on their payroll account. As of August 2, 2013, over $209 million has been credited to over 549,000 eligible employers.

“Our Government is continually working to improve business conditions in Canada, and one of the ways to do this is by keeping taxes low for job-creating businesses,” said Mr. Braid. “Measures like the Apprenticeship Job Creation Tax Credit and the Hiring Credit for Small Businesses help reduce the tax burden on employers and make it easier for companies to grow. In an uncertain global economy, our Government’s tax initiatives for jobs and growth is working and serving Canadians well.”

This tax relief builds on the support provided to apprentices through the Apprentice Incentive Grant provided in Budget 2006 and the Apprenticeship Completion Grant, which was introduced in Budget 2009.

The Scientific Research and Experimental Development (SR&ED) Program is a federal tax incentive program administered by the Canada Revenue Agency (CRA) that encourages Canadian businesses of all sizes and in all sectors to conduct research and development in Canada.

The SR&ED program allows Canadian-controlled private corporations, to earn a refundable Investment Tax Credit (ITC) of 35% on up to $3 million in qualified SR&ED expenditures for SR&ED carried out in Canada. The ITC is fully refundable on qualified SR&ED current expenditures and 40% refundable on qualified SR&ED capital expenditures.

For more information on the Hiring Credit for Small Business, go to www.cra.gc.ca/hiringcredit.

For more information on the Apprenticeship Job Creation Tax Credit, and other investment tax credits, go to www.cra.gc.ca/smallbusiness and select “Investment Tax Credit.”

For more information on SR&ED, go to www.cra.gc.ca/sred.

Canada Revenue Agency

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Harper Government providing Canadian families with back-to-school tax relief

London, Ontario, August 27, 2013... The Honourable Kerry-Lynne D. Findlay, P.C., Q.C., M.P., Minister of National Revenue, and Susan Truppe, Member of Parliament for London North Centre, today reminded students returning to school to take full advantage of the important financial relief available to them. In 2012, students and their families claimed more than $11 billion in financial assistance.

“Our Government is committed to supporting Canadian families by keeping taxes low. We will continue to offer tax relief measures to Canadians who are studying to get a post-secondary education,” said Minister Findlay. “Students and their families are faced with significant costs for tuition and enrollment in post-secondary educational programs. At the same time, post-secondary education is increasingly important in a global marketplace and a significant contributor to Canada’s economic growth and global competitiveness.”

Several programs offer tax relief to students who enroll in post-secondary education:

• Students can claim tuition fees paid to a university, college, or other educational institution in Canada for courses taken at the post-secondary level. Tuition fees paid for courses certified by Employment and Social Development Canada to develop or improve skills in an occupation also qualify.
• Students can claim an education amount of $400 for each whole or part month in the year in which they are enrolled full-time in a qualifying educational program, or $120 per month for part-time enrollment in a specified educational program, at a designated educational institution.
• Students can claim a textbook amount of $65 for each month where they qualify for the full-time education amount or $20 for each part-time month.

“Our Government wants to ensure students take advantage of all the tax credits they are eligible for and keep their hard-earned dollars,” said Mrs. Truppe. “At this time of the year, with students going back to school, it is important to remind them to keep their receipts in order to claim tax credits when filing their return during tax season and take advantage of the important financial relief available to them all year long.”

In addition to these tax credits mentioned above, students may be eligible for the goods and services tax/harmonized sales tax (GST/HST) credit – a tax-free quarterly payment that helps individuals and families with low or modest incomes offset all or part of the GST or HST that they pay. They may also claim a deduction for their moving expenses if they moved to study as a full-time student enrolled in a post-secondary program at a university, a college, or another educational institution.

Students may be able to claim amounts for interest paid on their student loans and they may also be eligible to claim the public transit tax credit for the cost of their public transit passes for travel within Canada on public transit.

For more information on tax credits and benefits for students, and other information specifically for students, go to www.cra.gc.ca/students on the Canada Revenue Agency’s (CRA) Web site.

The CRA encourages Canadians to take advantage of its safe, secure, and convenient electronic services to file their returns. In most cases, with direct deposit, individuals can receive their refund in as little as eight business days, compared to four to six weeks for a paper return.

Canada Revenue Agency

This a a reproduction copy of an official work that is published by the Government of Canada and that the reproduction has not been produced in affiliation with, or with the endorsement of the Government of Canada.

Extension of the electronic filing season

As part of our ongoing efforts to improve electronic filing processes, the Canada Revenue Agency (CRA) is pleased to announce the extension of the electronic filing season for 2012 T1 tax returns. The electronic filing systems, EFILE Online, EFILE Online Plus and SEND, will be available until January 17, 2014 instead of November 30.

Residential contractor fined $61,214 for tax evasion

North Bay, Ontario, August 26, 2013 … The Canada Revenue Agency (CRA) announced today that, on August 23, 2013, Ronald Foster of Trout Creek, Ontario, pleaded guilty in the Ontario Court of Justice in North Bay to two counts of tax evasion. Foster was fined $61,214 which represents 80% of the taxes evaded and unwarranted benefits received and was ordered to complete 120 hours of community service. Foster was also ordered to file all tax related income and information returns on time for the next two years.

Foster, the sole proprietor of a residential construction business called Control One Contracting, failed to report business income totaling $496,254 on his 2007 to 2010 personal income tax returns which resulted in the evasion of $48,782 in federal taxes. Also, as a result of not reporting all of his business income, Foster and his family received a total of $27,736 in Canada Child Tax Benefits and the GST/HST Credits to which they were not entitled.

“Tax evasion takes money away from the services that benefit all Canadians,” said Vince Pranjivan, Deputy Assistant Commissioner of the Ontario Region of the Canada Revenue Agency (CRA). “The CRA takes action against those who try to avoid paying what they owe.”

A CRA investigation revealed that Foster reported large net business losses for the 2007 and 2009 taxations years and lower business profits for 2008 and 2010. Furthermore Foster did this by depositing business income into a personal bank account; on occasion asking customers to pay in cash; or cashing cheques, received from customers, without first depositing them into his bank account.

The court also heard that Foster had a poor compliance history with the CRA in that he did not keep proper books and records and failed to file sub-contractor payment, payroll and GST/HST documentation as required by law.

The preceding information was obtained from the court records.

When taxpayers are convicted of income tax and/or GST/HST evasion, they still must repay the full amount of taxes owing, plus interest and any civil penalties that may be assessed by the CRA. In addition, the court may fine them up to 200% of the taxes evaded and impose a jail term of up to five years.

Taxpayers who have not filed returns for previous years, or who have not reported all of their income, can still voluntarily correct their tax affairs. They may not be penalized or prosecuted if they make a valid disclosure before they become aware of any compliance action being initiated by the CRA against them. These taxpayers may only have to pay the taxes owing, plus interest. More information on the Voluntary Disclosures Program (VDP) can be found on the CRA's Web site at www.cra.gc.ca/voluntarydisclosures.

Further information on convictions can also be found in the Media Room on the CRA website at www.cra.gc.ca/convictions.

Canada Revenue Agency

This a a reproduction copy of an official work that is published by the Government of Canada and that the reproduction has not been produced in affiliation with, or with the endorsement of the Government of Canada.

Minister Findlay highlights the Harper Government’s support for Canadian taxpayers

Edmonton, Alberta, August 23, 2013...The Honourable Kerry-Lynne D. Findlay, P.C., Q.C., M.P., Minister of National Revenue, and Mr. J. Paul Dubé, Taxpayers’ Ombudsman, today met with members of the local business community in Edmonton to discuss the Government of Canada’s commitment to supporting the rights of Canadian taxpayers.

In June 2013, the Harper Government announced the addition of a new right to the Taxpayer Bill of Rights. Under the new right, if taxpayers lodge a service complaint or request a formal review, they can be confident that they will be treated impartially, receive the benefits, credits, and refunds to which they are entitled and pay no more and no less than what is required by law.

“Our Government is committed to ensuring that all Canadians are treated with fairness and respect by the Canada Revenue Agency,” said Minister Finlay. “We want Canadians to know they are entitled to fair treatment without fear of reprisal, and that the Taxpayers’ Ombudsman is there to ensure their service rights are upheld.”

While there is no evidence that Canadians have been subject to reprisal by the Canada Revenue Agency (CRA), the Taxpayers’ Ombudsman heard during his outreach activities that taxpayers would sometimes hesitate to lodge a complaint for fear of being treated differently.

This new right reflects the Government’s commitment to taxpayer fairness and to further strengthen public confidence in the tax administration. It provides Canadians with added assurance that they can bring their concerns to the CRA and trust that they will be investigated fully and impartially.

The Harper Government has demonstrated a firm commitment to support taxpayers in their dealings with the CRA by creating the Office of the Taxpayers' Ombudsman in 2007, which operates independently from the CRA and was established to uphold taxpayer service rights and to provide an impartial review of unresolved service complaints from taxpayers.

Mr. Dubé was the first person to be appointed to the position of Taxpayers’ Ombudsman and this year celebrated his five year anniversary as the Ombudsman.

“Although my office works at arms-length from the CRA, we share the same goal of a tax system that serves Canadians with integrity,” said Mr. Dubé. “The Taxpayer Bill of Rights has a very important role in Canada’s tax system and it is the responsibility of my office to ensure that the service rights within the Bill are respected. I am pleased that the CRA has responded to my office’s recommendation to strengthen the Taxpayer Bill of Rights, and we will continue to collaborate on ways to better serve Canadians.”

Since its establishment, the Office has resolved thousands of requests for assistance from taxpayers.

“I am pleased to see the Office’s dedication to serve Canadians and I am proud of our collaborative work over the last five years,” said Minister Findlay. “I look forward to building on this success in the years to come”.

For more information about the Office of the Taxpayers’ Ombudsman, go to www.taxpayersrights.gc.ca.

For more information on the Taxpayer Bill of Rights, go to www.cra.gc.ca/rights.

 Canada Revenue Agency

This a a reproduction copy of an official work that is published by the Government of Canada and that the reproduction has not been produced in affiliation with, or with the endorsement of the Government of Canada.

Minister Findlay highlights key measures available to Canadian farmers and small agri-businesses

Lethbridge, Alberta, August 22, 2013... The Honourable Kerry-Lynne D. Findlay, P.C., Q.C., M.P., Minister of National Revenue, and Jim Hillyer, M.P. for Lethbridge, today met with community and business leaders to discuss key measures available to Canadian farmers and small to medium-sized agri-businesses.

“Keeping taxes low for Canadian small businesses is a cornerstone of our Government’s long-term plan for jobs, growth, and prosperity,” said Minister Findlay. “Canada’s farmers and agri-businesses cultivate our land and produce quality products for Canadian and international consumers. Our Government recognizes their contribution to Canada’s economy and we are proud to offer incentives that will help these businesses remain competitive and create jobs across the country.”

Minister Findlay highlighted the following key measures:

• The Hiring Credit for Small Businesses (HCSB) gives small businesses relief from the employer’s share of employment insurance (EI) premiums by crediting up to $1,000 on the payroll account. There is no application form to complete for the HCSB. For employers whose total employer EI premiums were $15,000 or less in 2012, a credit of up to $1,000 will automatically be calculated based on the increase of an employer’s EI premiums paid in 2013 over those premiums paid in 2012.

• The Apprenticeship Job Creation Tax Credit is a non-refundable investment tax credit equal to the lesser of $2,000 or 10% of the eligible salaries and wages payable to eligible apprentices in respect of employment. Eligible apprenticeships include jobs such as agricultural equipment technicians (in most provinces), and heavy duty equipment technicians.

• The Scientific Research and Experimental Development Program (SR&ED) is a federal tax incentive program administered by the Canada Revenue Agency (CRA) that encourages Canadian businesses of all sizes and in all sectors to conduct research and development in Canada. The SR&ED program allows agricultural producers to access investment tax credits (ITC) earned on contributions made to agricultural organizations that fund SR&ED. Canadian-controlled private corporations, including agri-business, can earn a refundable ITC of 35% on up to $3 million in qualified SR&ED expenditures for SR&ED carried out in Canada. The ITC is fully refundable on qualified SR&ED current expenditures and 40% refundable on qualified SR&ED capital expenditures.

“We recognize that small businesses and farms in communities like Lethbridge are essential to job creation,” said M.P. Hillyer. “Our Government is committed to working with Canadian farmers and agri-businesses as we continue to make progress with our Economic Action Plan"

Thousands of Canadians—from small business entrepreneurs to seniors to students —have benefited from a broad range of tax benefits and credits that respond to their unique needs. For more information on these and what the CRA is doing to help create jobs and growth for Canadians, go to www.cra.gc.ca/taxsavings.

For more information on the Hiring Credit for Small Businesses, go to www.cra.gc.ca/hiringcredit.

For more information on the Apprenticeship Job Creation Tax Credit, and other investment tax credits, go to www.cra-arc.gc.ca/smallbusiness and select “Investment Tax Credit.”

For more information on SR&ED, go to www.cra.gc.ca/sred.

Canada Revenue Agency

This a a reproduction copy of an official work that is published by the Government of Canada and that the reproduction has not been produced in affiliation with, or with the endorsement of the Government of Canada.

The ability to file your taxes online is now available via http://crunchnnumb3rs.ca/filetaxes.html .  This will enable you to file your taxes online with the purchase of TurboTax Canada 2012 Online Standard Edition, Premier Edition and Home & Business Software.

Jail and fine of over $1 million for tax evasion

Ottawa, Ontario, August 8, 2013… The Canada Revenue Agency (CRA) announced today that on August 6, 2013, Thi Phuong Mai Le of Ottawa, was fined $1,086,845 and sentenced to one year in jail for tax evasion in the Superior Court of Justice in Ottawa. Le pleaded guilty to tax evasion and other related charges on January 29, 2007. The fine represents 150% of the total federal income taxes evaded.

The preceding information was obtained from the court records.

When taxpayers are convicted of income tax and GST evasion, they still must repay the full amount of taxes owing, plus interest and any civil penalties that may be assessed by the CRA. In addition, the court may fine them up to 200% of the taxes evaded and impose a jail term of up to five years.

Taxpayers who have not filed returns for previous years, or who have not reported all of their income, can still voluntarily correct their tax affairs. They may not be penalized or prosecuted if they make a valid disclosure before they become aware of any compliance action being initiated by the CRA against them. These taxpayers may only have to pay the taxes owing, plus interest. More information on the Voluntary Disclosures Program (VDP) can be found on the CRA's Web site at www.cra.gc.ca/voluntarydisclosures.

Further information on convictions can also be found in the Media Room on the CRA website at www.cra.gc.ca/convictions.

Canada Revenue Agency

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