Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.))

Marginal note:Application of s. 237.1

237.2 Section 237.1 is applicable with respect to interests acquired after August 31, 1989.

Marginal note:Definitions

• 237.3 (1) The following definitions apply in this section.

  advisor

  advisor, in respect of a transaction or series of transactions, means each person who provides, directly or indirectly in any manner whatever, any contractual protection in respect of the transaction or series, or any assistance or advice with respect to creating, developing, planning, organizing or implementing the transaction or series, to another person (including any person who enters into the transaction for the benefit of another person). (conseiller)

  avoidance transaction

  avoidance transaction means a transaction if it may reasonably be considered that one of the main purposes of the transaction, or of a series of transactions of which the transaction is a part, is to obtain a tax benefit. (opération d’évitement)

  confidential protection

  confidential protection, in respect of a transaction or series of transactions, means anything that prohibits the disclosure to any person or to the Minister of the details or structure of the transaction or series under which a tax benefit results, or would result but for section 245, but for greater certainty, the disclaiming or restricting of an advisor’s liability shall not be considered confidential protection if it does not prohibit the disclosure of the details or structure of the transaction or series. (droit à la confidentialité)

  contractual protection

  contractual protection, in respect of a transaction or series of transactions, means

  • (a) any form of insurance or other protection, including, without limiting the generality of the foregoing, an indemnity, compensation or a guarantee, that

    • (i) either immediately or in the future and either absolutely or contingently,

      • (A) protects a person against a failure of the transaction or series to achieve any tax benefit from the transaction or series, or

      • (B) 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 in respect of a tax benefit from the transaction or series, and

    • (ii) is not

      • (A) standard professional liability insurance, or

      • (B) integral to an agreement between persons acting at arm’s length for the sale or transfer of all or part of a business (either directly or through the sale or transfer of one or more corporations, partnerships or trusts) where it is reasonable to consider that the insurance or protection

        • (I) is intended to ensure that the purchase price paid under the agreement takes into account any liabilities of the business immediately prior to the sale or transfer, and

        • (II) is obtained primarily for purposes other than to achieve any tax benefit from the transaction or series; and

  • (b) 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 manner whatever, to a person in the course of a dispute in respect of a tax benefit from the transaction or series. (protection contractuelle)

  fee

  fee, in respect of a transaction or series of transactions, means any consideration that is, or could be, received or receivable, directly or indirectly in any manner whatever, by an advisor or a promoter, or any person who does not deal at arm’s length with an advisor or promoter, for

  • (a) providing advice or an opinion with respect to the transaction or series;

  • (b) creating, developing, planning, organizing or implementing the transaction or series;

  • (c) promoting or selling an arrangement, plan or scheme that includes, or relates to, the transaction or series;

  • (d) preparing documents supporting the transaction or series, including tax returns or any information returns to be filed under this Act; or

  • (e) providing contractual protection. (honoraires)

  person

  person includes a partnership. (personne)

  promoter

  promoter, in respect of a transaction or series of transactions, means each person who

  • (a) promotes or sells (whether as principal or agent and whether directly or indirectly) an arrangement, plan or scheme (referred to in this definition as an “arrangement”), if it may reasonably be considered that the arrangement includes or relates to the transaction or series;

  • (b) makes a statement or representation (whether as principal or agent and whether directly or indirectly) that a tax benefit could result from an arrangement, if it may reasonably be considered that

    • (i) the statement or representation was made in furtherance of the promoting or selling of the arrangement, and

    • (ii) the arrangement includes or relates to the transaction or series; or

  • (c) accepts (whether as principal or agent and whether directly or indirectly) consideration in respect of an arrangement referred to in paragraph (a) or (b). (promoteur)

  reportable transaction

  reportable transaction, at any time, means an avoidance transaction that is entered into by or for the benefit of a person, and each transaction that is part of a series of transactions that includes the avoidance transaction, if at the time any of the following paragraphs applies in respect of the avoidance transaction or series:

  • (a) an advisor or promoter, or any person who does not deal at arm’s length with the advisor or promoter, has or had an entitlement, either immediately or in the future and either absolutely or contingently, to a fee (other than a fee in relation to a prescribed form required to be filed under subsection 37(11)) that to any extent

    • (i) is based on the amount of a tax benefit that results, or would result but for section 245, from the avoidance transaction or series,

    • (ii) is contingent upon the obtaining of a tax benefit that results, or would result but for section 245, from the avoidance transaction or series, or may be refunded, recovered or reduced, in any manner whatever, based upon the failure of the person to obtain a tax benefit from the avoidance transaction or series, or

    • (iii) is attributable to the number of persons

      • (A) who participate in the avoidance transaction or series, or in a similar avoidance transaction or series, or

      • (B) who have been provided access to advice or an opinion given by the advisor or promoter regarding the tax consequences from the avoidance transaction or series, or from a similar avoidance transaction or series;

  • (b) an advisor or promoter in respect of the avoidance transaction or series, or any person who does not deal at arm’s length with the advisor or promoter, obtains or obtained confidential protection, and the prohibition on disclosure provided under the confidential protection provides confidentiality in respect of a tax treatment in relation to the avoidance transaction or series,

    • (i) in the case of an advisor, from a person to whom the advisor has provided any assistance or advice with respect to the avoidance transaction or series under the terms of an engagement of the advisor by that person to provide such assistance or advice, or

    • (ii) in the case of a promoter, from a person

      • (A) to whom an arrangement, plan or scheme has been promoted or sold in the circumstances described in paragraph (a) of the definition promoter,

      • (B) to whom a statement or representation described in paragraph (b) of the definition promoter has been made, or

      • (C) from whom consideration described in paragraph (c) of the definition promoter has been received; or

  • (c) either

    • (i) the person (in this subparagraph referred to as the “particular person”), another person who entered into the avoidance transaction for the benefit of the particular person or any other person who does not deal at arm’s length with the particular person or with a person who entered into the avoidance transaction for the benefit of the particular person, has or had contractual protection in respect of the avoidance transaction or series, otherwise than as a result of a fee described in paragraph (a), or

    • (ii) an advisor or promoter in respect of the avoidance transaction or series, or any person who does not deal at arm’s length with the advisor or promoter, has or had contractual protection in respect of the avoidance transaction or series, otherwise than as a result of a fee described in paragraph (a). (opération à déclarer)

  solicitor-client privilege

  solicitor-client privilege[Repealed, 2023, c. 26, s. 68]

  tax benefit

  tax benefit has the meaning assigned by subsection 245(1). (avantage fiscal)

  tax treatment

  tax treatment, of a person, means a treatment in respect of a transaction, or series of transactions, that the person uses, or plans to use, in a return of income or an information return (or would use in a return of income or an information return if a return of income or an information return were filed) and includes the person’s decision not to include a particular amount in a return of income or an information return. (traitement fiscal)

  transaction

  transaction has the meaning assigned by subsection 245(1). (opération)

• Marginal note:Application

  (2) An information return in prescribed form and containing prescribed information in respect of a reportable transaction must be filed with the Minister by

  • (a) every person for whom a tax benefit results, or for whom a tax benefit is expected to result based on the person’s tax treatment of the reportable transaction, from

    • (i) the reportable transaction,

    • (ii) any other reportable transaction that is part of a series of transactions that includes the reportable transaction, or

    • (iii) a series of transactions that includes the reportable transaction;

  • (b) every person who has entered into, for the benefit of a person described in paragraph (a), an avoidance transaction that is a reportable transaction;

  • (c) every advisor or promoter in respect of the reportable transaction, or in respect of any other transaction that is part of a series of transactions that includes the reportable transaction, who is or was entitled, either immediately or in the future and either absolutely or contingently, to a fee in respect of any of those transactions that is

    • (i) described in paragraph (a) of the definition reportable transaction in subsection (1), or

    • (ii) in respect of contractual protection provided in circumstances described in paragraph (c) of the definition reportable transaction in subsection (1); and

  • (d) every person who is not dealing at arm’s length with an advisor or promoter in respect of the reportable transaction and who is or was entitled, either immediately or in the future and either absolutely or contingently, to a fee that is referred to in paragraph (c).

• Marginal note:Clarification of reporting transactions in series

  (3) For greater certainty, and subject to subsection (11), if subsection (2) applies to a person in respect of each reportable transaction that is part of a series of transactions that includes an avoidance transaction, the filing of a prescribed form by the person that reports each transaction in the series is deemed to satisfy the obligation of the person under subsection (2) in respect of each transaction so reported.

• Marginal note:Clerical or secretarial services

  (4) For greater certainty, subsection (2) does not apply to a person solely because the person provided clerical services or secretarial services with respect to a reportable transaction.

• Marginal note:Time for filing return

  (5) An information return required under subsection (2) to be filed with the Minister for a reportable transaction must be filed by

  • (a) a person described in paragraph (2)(a) or (b) on or before the particular day that is 90 days after the earliest of

    • (i) the day on which the person becomes contractually obligated to enter into the reportable transaction,

    • (ii) the day on which the person enters into the reportable transaction, and

    • (iii) if the person is described in paragraph (2)(a) and a person described in paragraph (2)(b) enters into the reportable transaction for the benefit of the person described in paragraph (2)(a), the day on which the reportable transaction is entered into; and

  • (b) a person described in paragraph (2)(c) or (d) no later than the earliest particular day described in paragraph (a) for a person described in paragraph (2)(a) or (b) in respect of the reportable transaction.

• Marginal note:Tax benefits disallowed

  (6) At any time, section 245 is to be read without reference to its subsection (4) in respect of any reportable transaction in respect of a person described in paragraph (2)(a) in relation to the reportable transaction if, at that time,

  • (a) the obligation under subsection (2) of the person in respect of the reportable transaction, or any other reportable transaction that is part of a series of transactions that includes the reportable transaction, has not been satisfied;

  • (b) a person is liable to a penalty under subsection (8) in respect of the reportable transaction or any other reportable transaction that is part of a series of transactions that includes the reportable transaction; and

  • (c) the penalty under subsection (8) or interest on the penalty has not been paid, or has been paid but an amount on account of the penalty or interest has been repaid under subsection 164(1.1) or applied under subsection 164(2).

• Marginal note:Assessments

  (7) Notwithstanding subsections 152(4) to (5), the Minister may make any assessments, determinations and redeterminations that are necessary to give effect to subsection (8).

• Marginal note:Penalty

  (8) Every person who fails to file an information return in respect of a reportable transaction as required under subsection (2) on or before the day required under subsection (5) is liable to a penalty equal to

  • (a) if the person is described in paragraph (2)(a) or (b),

    • (i) if the person is a corporation and the carrying value of the corporation’s assets is greater than or equal to $50 million for its last taxation year that ends prior to the day on which the information return is required to be filed under subsection (5), $2,000 multiplied by the number of weeks during which the failure continues, to a maximum amount equal to the greater of

      • (A) $100,000, and

      • (B) 25% of the amount of the tax benefit in respect of the reportable transaction, and

    • (ii) in any other case, $500 multiplied by the number of weeks during which the failure continues, to a maximum amount equal to the greater of

      • (A) $25,000, and

      • (B) 25% of the amount of the tax benefit in respect of the reportable transaction; and

  • (b) if the person is described in paragraph (2)(c) or (d), the total of

    • (i) the amount of the fees charged by that person in respect of the reportable transaction,

    • (ii) $10,000, and

    • (iii) $1,000 multiplied by the number of days during which the failure continues, up to a maximum of $100,000.

• Marginal note:Penalty – deeming rule

  (8.1) If a person described in both paragraphs (2)(b) and (d) is liable to a penalty under subsection (8) in respect of a reportable transaction, the amount of the penalty is deemed to be equal to the greater of the amounts determined under paragraphs (8)(a) and (b).

• Marginal note:Carrying value

  (8.2) For the purpose of subparagraph (8)(a)(i), the carrying value of the assets of a corporation is to be determined in accordance with paragraphs 181(3)(a) and (b).

• (9) [Repealed, 2023, c. 26, s. 68]

• (10) [Repealed, 2023, c. 26, s. 68]

• Marginal note:Due diligence

  (11) A person required to file an information return in respect of a reportable transaction is not liable for a penalty under subsection (8) if the person has exercised the degree of care, diligence and skill to prevent the failure to file that a reasonably prudent person would have exercised in comparable circumstances.

• Marginal note:Reporting not an admission

  (12) The filing of an information return under this section by a person in respect of a reportable transaction is not an admission by the person that

  • (a) section 245 applies in respect of any transaction; or

  • (b) any transaction is part of a series of transactions.

• Marginal note:Optional disclosure — GAAR

  (12.1) If subsection (2) does not apply to a taxpayer in respect of a transaction or series of transactions of which the transaction is a part, the taxpayer may file an information return in prescribed form and containing prescribed information in respect of the transaction or series on or before the taxpayer’s filing-due date for the taxation year in which the transaction occurs.

• Marginal note:Late filing — GAAR

  (12.2) Despite subsection (12.1), a taxpayer may file the information return referred to in subsection (12.1) up to one year after the deadline referred to in that subsection, in which case

  • (a) for the purpose of applying subparagraphs 152(4)(b)(viii) and (4.01)(b)(xi) to the transaction referred to in subsection (12.1), the reference to “3 years” in paragraph 152(4)(b) is to be read as “1 year”; and

  • (b) for the purpose of applying subsection 245(5.1) to the transaction, the information return is deemed to have been filed within the time required by this section.

• Marginal note:Application of sections 231 to 231.3

  (13) Without restricting the generality of sections 231 to 231.3, even if a return of income has not been filed by a taxpayer under section 150 for a taxation year of the taxpayer in which a transaction occurs that is relevant to the tax benefit referred to in paragraph (2)(a) that results (or is expected to result) from the reportable transaction, sections 231 to 231.3 apply, with such modifications as the circumstances require, for the purpose of permitting the Minister to verify or ascertain any information in respect of the reportable transaction.

• Marginal note:Tax shelters and flow-through shares

  (14) For the purpose of this section, a reportable transaction does not include a transaction that is, or is part of a series of transactions that includes,

  • (a) the acquisition of a tax shelter for which an information return has been filed with the Minister under subsection 237.1(7); or

  • (b) the issuance of a flow-through share for which an information return has been filed with the Minister under subsection 66(12.68).

• Marginal note:Tax shelters and flow-through shares — penalty

  (15) Notwithstanding subsection (8), the amount of the penalty, if any, that applies on a person under that subsection in respect of a reportable transaction shall not exceed the amount determined by the formula

  A – B

  where

  A

  is the amount of the penalty imposed on the person under subsection (8), determined without reference to this subsection; and

  B

  is

  • (a) if the reportable transaction is the acquisition of a tax shelter, the amount of the penalty, if any, that applies on the person under subsection 237.1(7.4) in respect of the tax shelter,

  • (b) if the reportable transaction is the issuance of a flow-through share, the amount of the penalty, if any, that applies on the person under subsection 66(12.74) in respect of the issuance of the flow-through share, and

  • (c) in any other case, nil.

• Marginal note:Anti-avoidance

  (16) Subsection (14) does not apply to a reportable transaction if it is reasonable, having regard to all of the circumstances, to conclude that one of the main reasons for the acquisition of a tax shelter, or the issuance of a flow-through share, is to avoid the application of this section.

• Marginal note:Solicitor-client privilege

  (17) For greater certainty, this section does not require the disclosure of information if it is reasonable to believe that the information is subject to solicitor-client privilege.