More importantly, if the required disclosure is not made, the new rules will indefinitely suspend the assessment period with respect to the tax consequences arising from the agreement. If the disclosure is filed late, the assessment period begins to run again from the filing date. These new measures stipulate that a taxpayer who is a party to a nominee agreement entered into in connection with a transaction with tax consequences must disclose that agreement by means of a mandatory information return no later than December 23, 2020 or 90 days after the conclusion of the designation agreement, whichever is later. In the case of a limited partnership that is a party to a name loan agreement, the disclosure obligation applies only to all of its general partners and not to its limited partners. Agreements with candidates entered into before the age of 17. May 2019 and have no lasting tax consequences after this date, do not have to be disclosed under these new rules. According to the bill, mandatory disclosure must be made via a prescribed form. The information to be disclosed is as follows: (a) the date on which the nominee agreement was concluded, (b) the identity of the parties to the nominee agreement, (c) a full description of the facts of the transaction in sufficient detail for the Minister to analyse it and fully understand the tax consequences, (d) the identity of another natural or legal person for whom the transaction has tax consequences, and (e) other information required under the prescribed form, including a copy of the applicant agreement. The mandatory form (TP-1079.PN) is available on the RQ website and must be sent by registered mail. Whether or not they already had to be disclosed to Revenu Qu̩bec on the province`s corporate income tax return (CO-17-T), ALL Quebec taxpayers must now disclose ALL nominee agreements that fall into the following two categories: A taxpayer or a member of a partnership, if applicable, who fails to make a duly completed copy of the above form within the time limit by submitting a duly completed copy of the above form. a completed copy of the above form, together with the other party to the Agreement, will be subject to a penalty of C$1,000 on the first day following the registration deadline and an additional penalty of C$100 per day for each day the breach continues thereafter, up to a maximum of C$5,000. December 8, 2020 РAs explained in our bulletin of August 15, 2019, Revenu Qu̩bec announced it on August 17, 2019. May 2019 new rules requiring disclosure of all applicant agreements.
The application of these rules has been suspended until regulations can be adopted. Bill 42 implementing these rules was finalized on September 24, 2020, and these rules are now in force (An Act implementing the tax measures announced in the Budget Speech of March 21, 2019 and various other measures, SQ 2020, c 16). The disclosure must be filed no later than (i) 90 days after the conclusion of the Nominee Agreement and (ii) December 23, 2020 (meaning that Nominee Agreements entered into at any time before September 24, 2020 must be disclosed no later than December 23, 2020). Sanctions will be imposed for non-compliance with the disclosure obligation. The penalty is $1,000 plus an additional $100 per day for which disclosure is not filed from the second day of failure, up to a maximum of $5,000. Most importantly, non-compliance will result in the suspension of the limitation period that otherwise applies to one or more transactions. This suspension would allow Revenu Québec to reassess taxes, interest and penalties for parties to a nominee agreement, even if the normal revaluation period has expired; however, it must reasonably be assumed that the revaluation relates to the tax consequences of the transaction(s) to which the nominee agreement relates. The parties to a candidate agreement therefore express their true intention in a contract that remains secret. These “secret contracts”, also known as “nominee” contracts, are legal and common in the real estate sector. As an example, let`s take the example of a rental property acquired on July 17, 2019, which is the subject of a ready-to-wear agreement. Disclosure of the agreement must be made no later than October 15, 2019, otherwise the beneficial owner`s rental income assessment period for the year 2019 and all subsequent taxation years will be suspended until disclosure.
Disclosure must be made using the prescribed form (TP-1079.PN) and must include the following: A nominee agreement is an agreement in which one party, the nominee, agrees to act on behalf of another party, the principal, to issue a legal or similar document, but without disclosing the relationship with third parties (giving the impression that the applicant is acting on its own behalf). Although the concept of a nominee agreement is not defined in income tax legislation, the use of a nominee agreement is legal and is essentially based on articles 1451 and 2130 of the Civil Code of Québec with respect to simulation and mandate in Quebec. However, these new measures apply to all nominee agreements, regardless of the law under which they are incorporated, provided they have tax consequences in Quebec. With the adoption of these new measures, the Agence du revenu du Québec (AQR) aims to ensure greater transparency of the tax system and prevent the use of candidates for tax evasion and tax avoidance. The information return must be submitted to Revenu Québec no later than 90 days after the date on which the nominee agreement was entered into. It is not necessary to regularly submit the mandatory form for each financial year in which the agreement is in force. In addition, only one of the parties to the agreement must file the income tax return. Please feel free to contact a member of our team with any questions or other advice if you believe you are affected by these new disclosure requirements for candidate contracts, if your particular situation makes disclosure difficult before December 23, 2020, or if you need assistance in complying with this new obligation. If the Agreement on the Candidate is not disclosed in the prescribed form within the prescribed time, the parties to the Agreement on the Candidate will be jointly and severally liable for a discretionary penalty of $1,000 and an additional discretionary penalty of $100 per day, from the second day of the omission, up to a maximum of $5,000.
Parties who do not comply with the new disclosure requirement may ask RQ to waive or waive penalties in accordance with the usual administrative facilitation provisions. Given the more “mysterious” nature of agreements with candidates, relationships with disclosed agents are generally not subject to this new disclosure requirement. In fact, the AQR has clearly identified three exceptions to which the disclosure requirement would not apply (unless they themselves constitute a nominee or nominee agreement): the investment dealer, the lawyer-client relationship or any other mandate. Agreements where only certain parties are aware of the existence of a relationship with a candidate are therefore likely to be subject to this new disclosure requirement. A person`s tax document is confidential. No information contained in a person`s tax record may be used or disclosed unless the person gives consent or the use or disclosure is authorized by the Tax Administration Act, which provides limited exceptions to the prohibition on transmitting information contained in an individual`s tax record. In this context, it is not clear how this information can be used internally by the tax authorities in their examination of other tax matters relating to the parties to the ready-to-wear contract or the goods subject to this agreement. RQ believes that it is up to each taxpayer to determine the “tax consequences” specific to his or her situation and that it therefore seems difficult to identify situations where, according to RQ`s position, certain real estate nominee contracts would be excluded from the disclosure requirement.
At the 2019 APFF Annual Conference, the QRA stated that the term “tax consequences” must be interpreted broadly to include any duties, taxes or duties under the responsibility of the QRA. As a result, most nominee agreements are subject to disclosure requirements in the business context, as they typically have tax consequences such as revenues, expenses, and the creation of tax attributes. Bill 42 requires a taxpayer who is a party to a nominee agreement entered into in connection with a transaction with tax consequences under the Tax Act (Quebec) to disclose the agreement and transaction to Revenu Québec (“QR”). On May 17, 2019, the Ministère des Finances du Québec published Information Bulletin 2019-2019-5, announcing new mandatory disclosure requirements for nominee agreements. The bill was then published on November 7, 2019 and received its approval on September 24, 2020. At the 2019 Annual Conference of the Financial and Fiscal Planning Association (APFF), QRA confirmed that the current understanding of what a candidate is will not change. .