Quebec Nominee Disclosure: December 23, 2020 Deadline Approaching
As per our original article of June 26, 2019 (here), concerning the obligation to disclose certain nominee contracts to Revenu Québec (“RQ”), the Quebec National Assembly has adopted the Act giving effect to the tax measures announced on the occasion the budget speech of March 21, 2019 and certain other measures (the “Disclosure Law”), which came into force on September 24, 2020.
Several elements presented by the Quebec Minister of Finance in Information Bulletin 2019-5 have been confirmed or clarified by the new Disclosure Law. The most important points are:
- nominee contracts entered into (at any time) as part of a transaction giving rise to "tax consequences" under the Taxation Act after May 16, 2019, are subject to the disclosure obligation. So this obligation applies no matter when the nominee arrangement was entered into, as long as it has "tax consequences" after May 16, 2019;
- the disclosure requirement applies to any taxpayer or member of a partnership (but only general partners in the case of limited partnerships) who have entered into a nominee agreement;
- the disclosure made by one of the parties to the nominee contract will be deemed to have been made by all the parties to the contracts;
- the disclosure must be made using a prescribed form TP-1079.PN (here), and the instructions on the form state "If you concluded a nominee agreement, counter letter or apparent contract in writing, enclose a copy."
- the deadline for making the disclosure is the latest of:
- the 90th day following the date of the conclusion of the nominee contract; or
- December 23, 2020;
- the penalty applicable jointly and severally to the parties in the event of the failure to disclose within the prescribed time limits will not exceed $5,000; and
- if the disclosure is not made, the limitation period otherwise applicable to a taxation year of a party to the nominee contract will be suspended with respect to the "tax consequences" which result from a transaction which is part of the nominee contract, but only to the extent that the reassessment can reasonably be considered to relate to these "tax consequences" .
Despite the questions raised following the publication of Information Bulletin 2019-5, the Disclosure Law does not define the notion of "tax consequences". However, the Disclosure Law clarifies that only "tax consequences" under the Taxation Act (Quebec) are covered, thus excluding tax consequences under other laws, in particular the Act respecting the Quebec sales tax (QST) and the Act respecting duties on transfers of immovables (Quebec land transfer tax).
In an interpretation letter published in July 2019, so before the filing of the Disclosure Law, RQ responded to a request for clarification regarding the expression “tax consequence” by indicating, unsurprisingly, that this concept should be interpreted in a liberal manner so as to target, in particular, income, expenditures, depreciation, and the creation of tax attributes, and continues as follows:
"In our opinion, any duty, tax or contribution under the responsibility of Revenu Québec is likely to result in the existence of consequences in terms of income tax or to occur concomitantly with them. Thus, income tax consequences are expected to result from the vast majority of business transactions." [unofficial translation]
Following this reasoning, RQ specifies that the simple creation of adjusted cost base for the taxpayer on the acquisition of a building qualifies as a “tax consequence”, as does the accumulation of years for the purposes of calculating the principal residence deduction. This interpretation leads RQ to consider that that the disclosure obligation applies to nominee contracts which are concluded:
- for non-tax purposes, including only for administrative simplicity;
- for the sole purposes of Quebec land transfer duties; and/or
- in the context of real estate transactions, regardless of whether the nominee takes into account rental income or depreciation for tax purposes or not.
RQ believes that it is up to each taxpayer to determine the "tax consequences" specific to their situation, and so it seems difficult to identify situations which, in accordance with RQ's position, certain real estate nominee contracts would be excluded from the disclosure obligation.
Do not hesitate to contact a member of our team for any questions or more advice if you believe you are affected by these new disclosure obligations for nominee contracts, if your particular situation makes it difficult for a possible disclosure before December 23, 2020, or if you need assistance in order to comply with this new obligation.
tax real estate