Mandatory Disclosure Reporting (MDR)

Are you prepared for new mandatory disclosure rules?

Canada’s Income Tax Act previously contained rules requiring that certain transactions be reported to the Canada Revenue Agency (CRA). In recognition of the challenges faced by the CRA in obtaining timely, comprehensive and relevant information on aggressive tax planning strategies, Budget 2021 introduced various measures based on the recommendations put forth in Action Item 12 of the OECD’s Base Erosion and Profit Shifting Project. These measures encompass the expansion of the existing reportable transaction rules and the introduction of new reporting requirements for notifiable transactions and reportable uncertain tax treatments.

Enhanced mandatory disclosure rules were subsequently integrated into the existing framework and were officially enacted into law.

New thresholds and timelines for identifying and disclosing transactions

The expanded rules for reportable and notifiable transactions are applicable to transactions entered into on or after June 22, 2023. Additionally, they are applicable to reportable uncertain tax treatment for tax years commencing after 2022.

The legislation applies to individuals, corporations (residents of Canada and non-resident corporations with a taxable presence in Canada), trusts, and partnerships, as well as certain advisors, promoters, and non-arm’s length parties involved in transaction arrangements.

The new rules are complex and taxpayers should ensure they have implemented a process to determine whether transactions and uncertain tax positions fall within the new definitions and thresholds and must be reported. Transactions that are not properly disclosed within 90 days of entering into the transaction may be subject to onerous penalties and can extend a taxpayer’s reassessment period for certain tax years.

Taxpayers should take proactive steps to assess whether they may have engaged in or plan to enter into transactions after 2022 that are subject to mandatory disclosure rules.