Frequently asked questions about amendments to the mandatory disclosure rules in the Income Tax Act

Note: This resource is provided for information purposes only.

On September 11, 2023, the Federation of Law Societies of Canada, on behalf of all law societies in Canada, filed an application in the British Columbia Supreme Court, challenging the constitutionality of amendments to the mandatory disclosure rules in theIncome Tax Act(ITA) as it applies to members of the legal professions.

On November 24, 2023, the Supreme Court of British Columbia granted an injunction suspending the application of the expanded mandatory disclosure rules in the ITA to members of the legal professions pending the outcome of the Federation’s challenge to the constitutionality of those provisions.

Licensees who may be impacted by these legislative amendments or whose clients may be affected may wish to take additional steps to remain informed of future developments concerning the matters addressed in these FAQ. Additional resources that licensees may wish to consult to maintain currency are included at the end of this resource.

1. What are the amendments to the mandatory disclosure rules in the Income Tax Act?
In the Budget Implementation Act 2023 (Bill C-47), the federal government has expanded the mandatory disclosure rules in the Income Tax Act (ITA).
The ITA amendments will:
See Also
Mandatory disclosure rules – Overview Mandatory disclosure rules – Guidance Tax Insights: Mandatory disclosure rules ─ Taxpayers, advisers and promoters need to prepare EY Tax Alert 2023-29 - New mandatory disclosure rules are now in effect
- Expand the existing reportable transactions regime significantly, including broadening the definition of reportable “avoidance transactions”, and reducing from 3 to 1 the number of hallmarks that must be present to require the reporting of an avoidance transaction.
- Create a new category of “notifiable transactions” that must be reported to the Canada Revenue Agency (CRA). Notifiable transactions are transactions designated by the Ministers of Finance or National Revenue and transactions that are the same or substantially similar to those designated transactions.
- Remove the “reliance” or “relieving” rule, which deemed full and accurate reporting by one party to be reporting by all parties.
- Create new penalties for non-reporting by advisors, including licensees, set at the total of:
  - The fees charged in respect of the transaction,
  - $10,000, and
  - $1,000 multiplied by the number of days the failure continues up to a maximum of $100,000.
2. Who is required to report?
The new requirements apply to taxpayers, promoters and advisors. An advisor is defined as a person giving assistance or advice with respect to “creating, developing, planning, organizing or implementing” a reportable or notifiable transaction. As such, “advisor” may include lawyers and paralegals. The impact of these changes may not be limited to tax practitioners specifically advising on tax transactions. Any licensee who serves clients in respect of certain transactions with a tax benefit may be required to report those transactions to the CRA.
The removal of the “relieving” rule has resulted in an important change for licensees. Whereas previously it was sufficient for one report to be made to CRA (by the taxpayer, for example), now every party involved in a reportable or notifiable transaction including the taxpayer, promoters or advisors (including licensees) must all report these transactions to CRA.
3. When are the amended reporting obligations effective?
The amended reporting obligations apply to transactions entered into after June 22, 2023, when Bill C-47 received Royal Assent. The amended reporting obligations also apply to transactions or series of transactions that “straddle” Royal Assent. For additional information licensees should review CRA’s Mandatory disclosure rules – guidance.
4. What are a licensee's obligations to a client as a result of these amendments and enhanced disclosure requirements?
Licensees giving assistance or advice with respect to creating, developing, planning, organizing or implementing a reportable or notifiable transaction should be mindful of their general obligation to their client to preserve the confidentiality of information concerning the client and the client’s matter.
Wherenotwithstanding this general obligation a licensee is required by law to disclose confidential information, the licensee should inform the client in writing that their confidential information may be disclosed to the CRA.
In addition to advising clients concerning the licensee’s obligation to report, the licensee should also confirm that the client(s) and any other promoters or advisors involved in a reportable or notifiable transaction are aware that each of them may also be required to report the transaction information to CRA.
See Also
New mandatory tax reporting: Final legislation released
Licensees who have questions about managing their obligations to maintain client confidentiality in accordance with their professional obligations may wish to contact the Practice Management Helpline for further guidance.
5. Can a licensee claim solicitor-client privilege in respect of information concerning reportable or notifiable transactions?
The ITA provides an exception to the reporting requirements in the case of a lawyer who is an advisor in respect of a reportable transaction. Disclosure of information is not required if it is reasonable to believe that the information is subject to solicitor-client privilege.
Licensees should consider whether any of the information required by the CRA is subject to solicitor-client privilege and advise clients that they will not report that information. The issue of solicitor-client privilege should also be brought to the attention of other promoters or advisors involved in a potentially reportable or notifiable transaction, as applicable.
Lawyers seeking further guidance concerning whether solicitor-client privilege may be asserted in respect of particular matters may wish to review the Law Society’s Solicitor-client privilege resource. Lawyers may also wish to take steps to be connected with an advisor through theCoach and Advisor Network, or alternately may wish to consult with another legal professional.
6. Where can I find additional information and supports regarding the amendments to the mandatory disclosure rules in the ITA?
For more information on the amendments to the mandatory disclosure rules in the ITA, licensees may wish to consult the below resources:
Notice to the professions: Amendments to the mandatory disclosure rules in the Income Tax Act
Federation of Law Societies of Canada application related documents:
Government of Canada resources and legislation:
For regular updates and information concerning CRA reporting requirements, licensees should consider following the CRA onsocial mediaor via theirRSS feed.

Last updated:March 6, 2024

Frequently asked questions about amendments to the mandatory disclosure rules in the Income Tax Act - Lawyer (2024)

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