“Right now, it’s very burdensome,” says Jadd, a senior partner in the firm’s Toronto office and chair of the national tax group. “It’s going to be very expensive for clients, and very difficult for law firms and accounting firms when we’re advising clients.”
Notifiable transactions are “basically the CRA’s greatest hits,” he says. They are six different specific types of transactions that the CRA wants to audit, which are not necessarily problematic but could be.
Reportable transactions are not specific types of transactions, but they have specific features. One feature is that someone is deriving a fee based on the amount of tax savings resulting from the deal or how many people are participating in the plan. Another feature is when a party has some type of indemnity insurance protection that promises compensation if no tax benefit results from the transaction. Either of these features – plus a few others – combined with the marks of an avoidance transaction, triggers an obligation to report.
The requirement that every adviser who worked on a notifiable transaction file a report can raise compliance difficulties, says Jadd. Notifiable transactions include an accountant to structure it and could include a banking lawyer who would assist with the loan, which can be required in some of these transactions. Because they’re involved in the implementation of the transaction, either of these advisers must file a report. But the client may not tell the banking lawyer, who is not an expert on tax planning, the purpose of the loan and the failure to file a report carries a maximum penalty of 110 percent of their fees plus $100,000.
“There’s egregious tax planning,” he says. “I don’t think anybody is really in favour of egregious tax planning. But there’s the everyday stuff, and the system that they’ve now implemented is so broad ranging, so open to interpretation as to what’s caught and what’s not caught, that it’s sweeping up ordinary, everyday tax plans.”