An Update on the Mandatory Disclosure Rules

An Update on the Mandatory Disclosure Rules

The implementation of changes to the Mandatory Disclosure Rules as proposed in the 2021 federal budget continues to be a multi-year process. The proposed changes include broadening the scope of the existing reportable transaction rules, enacting notifiable transaction rules and enacting uncertain tax treatment rules. Recently, the government renewed its commitment to implementing the proposed rules, but their coming into force has mixed timing. The Department of Finance (Finance) proposes that the reporting of uncertain tax treatments have an earlier coming into force date, applying to tax years beginning after 2022, while the other proposed disclosure rules will come into force when a bill implementing the legislation receives Royal Assent. This mixed timing will have different implications for taxpayers entering into transactions in 2023.

Brief Legislative History of the Changes to the Mandatory Disclosure Rules

The 2021 Budget proposed changes to the Mandatory Disclosure Rules to address the lack of timely, comprehensive and relevant information on aggressive tax planning strategies, stating that early access to this information allows tax authorities to respond quickly through informed risk assessments, audits and changes to legislation. The 2021 Budget also indicated that the Income Tax Act’s existing reportable transaction legislation was not sufficiently robust to address the above concerns.

The 2021 Budget announcement of changes to the Mandatory Disclosure Rules was followed by a series of public consultations with draft legislative proposals released in February and August of 2022. It was anticipated that a bill before the end of 2022 would include the proposed changes to the Mandatory Disclosure Rules. While Bill C-32 contained other outstanding legislative measures announced in the 2021 and 2022 federal budgets, the Mandatory Disclosure Rules were not included. However, the 2022 Fall Economic Statement confirmed the government’s intention to implement changes to the Mandatory Disclosure Rules. In conjunction with the economic statement, Finance clarified that the coming into force dates would be mixed. For the enactment of the rules relating to notifiable transactions and the changes to the rules relating to reportable transactions, the coming into force date is delayed until a bill implementing the legislation receives Royal Assent. For the rules relating to uncertain tax treatments, Finance maintained that these rules would apply to taxation years beginning after 2022 (except for associated penalties which will apply only after Royal Assent). Finance aims to use the delay to assess the feedback received from the public consultations on the proposed changes to the rules.