Determined Transactions

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A determined transaction is a transaction determined by the Minister for purposes of the mandatory disclosure rules and published in the Gazette officielle du Québec. The following have been determined transactions since March 17, 2021:

Avoidance of deemed disposal of trust property

Description

Tax law states that a trust is deemed to dispose of all its property at certain times (for example, on the 21st anniversary of its creation). It also contains an anti-avoidance provision that states that if a trust (the original trust) transfers its property to another trust (the transferee trust), the transferee trust is deemed to dispose of its property on the 21st anniversary of the original trust's creation. These provisions ensure that the trust is taxed on the latent gain accumulated on its property and prevents it from postponing taxation indefinitely.

Generally speaking, the determined transaction targets planning strategies used to get around these provisions and postpone taxation of the accumulated gain.

Determined transaction

A transaction that includes the following facts is hereby determined by the Minister:

  1. a trust is resident in Québec at any time in the course of the transaction;
  2. the trust holds at that time a particular property that is a capital property or land included in the inventory of a business of the trust;
  3. the particular property is not exempt property;
  4. at a particular time in the course of the transaction, the trust distributes the particular property and is deemed to dispose of it for proceeds of disposition that are less than its fair market value immediately before that time;
  5. the disposition referred to in subparagraph d results in the trust not being deemed to dispose of the particular property under section 653 of the Act at the end of a day described in any of subparagraphs a to c of the first paragraph of that section 653, nor to reacquire the particular property immediately after that day; and
  6. after the particular time referred to in subparagraph d, a trust holds, directly or indirectly, the particular property or another property whose fair market value is derived, directly or indirectly, from the particular property, or so holds property substituted for the particular property or for the other property, as the case may be.

A trust that is a party to a specified transaction in relation to a transaction referred to in the first paragraph is required to disclose the specified transaction.

The obligation to disclose the specified transaction applies as of the day that includes the particular time referred to in subparagraph d of the first paragraph.

Included transaction

Without limiting the scope of the determined transaction, a transaction or series of transactions is included when Revenu Québec considers that it falls under the general definition of a determined transaction.

It includes the factual situations described in the following technical interpretations:

  1. CANADA REVENUE AGENCY, technical interpretation 2017-0693321C6 2017, “2017 STEP-Q2-GAAR and 21-year planning,” June 13, 2017.
  2. CANADA REVENUE AGENCY, technical interpretation 2016-0669301C6, “2016 CTF‑Q1‑GAAR and 21-year planning,” November 29, 2016.

Excluded transaction

A transaction or series of transactions is excluded when Revenu Québec considers that it does not fall under the general definition of a determined transaction or is excluded from its application.

There are no excluded transactions at this time.

Who must make the disclosure

A trust that is party to such a specified transaction must disclose it.

Disclosure deadline

The 60-day deadline for disclosing such a specified transaction is calculated from the day that the trust distributes the particular property.

The obligation to disclose such a specified transaction applies if the transaction begins after the date the transaction determined by the Minister to which the specified transaction relates is published in the Gazette officielle du Québec. For purposes of determining when the specified transaction began, the reference to a series of transactions is deemed not to include transactions and events completed in order to conduct the series and therefore excludes related or preliminary transactions and events.

For example, in the case of the determined transaction called “avoidance of the deemed disposal of trust property,”  the creation of the trust referred to in subparagraph (a) is not part of the specified transaction. However, the avoidance transactions referred to in section 653 of the Act are included. As a result, if a trust was created before March 18, 2021, but its property was distributed on or after that date, the obligation to disclose such a specified transaction would apply, provided that the other conditions regarding the determined transaction were met.

Payment to a non-treaty country

Description

By virtue of tax laws, a Québec subsidiary of a multinational corporation can reduce its income by making intragroup payments (for example, royalties, interest or management fees) to other members of the group outside Canada, a practice that reduces Québec's tax base.

Generally speaking, the determined transaction targets one or more payments, totaling $1,000,000 or more during the year, which are made by a person or partnership to an entity with which it is not dealing at arm's length and which is located in a jurisdiction that has not entered into a tax treaty with Canada.

A tax treaty is an agreement meant to avoid double taxation of income. It does not include tax information exchange agreements.

Determined transaction

A transaction that includes the following facts is hereby determined by the Minister:

  1. a particular person or a particular partnership in respect of which any of the following conditions is met is a party to the transaction:
    1. in the case of a person that is an individual or a trust, the person is resident in Québec at the end of a particular taxation year in which the transaction occurs;
    2. in the case of a person that is a corporation, the person has an establishment in Québec at any time in a particular taxation year in which the transaction occurs; or
    3. in the case of a partnership, each member of the partnership is required, under section 1086R78 of the Regulation respecting the Taxation Act (chapter I-3, r. 1), to file an information return for a particular fiscal period of the partnership in which the transaction occurs;
  2. the transaction relates, in any manner whatever, to a business carried on in Québec by the particular person in the course of the particular taxation year, except a business the person carries on as a member of a partnership, or by the particular partnership in the particular fiscal period;
  3. another person that is not resident in Canada and with whom the particular person or the particular partnership or a member of the particular partnership, as the case may be, does not deal at arm's length in the particular taxation year or particular fiscal period, as the case may be, or another partnership of which such other person is a member, is a party to the transaction, if
    1. the other person at any time in the particular taxation year is resident in a country with which the Government of Québec or of Canada at that time has not entered into a tax agreement; or
    2. the other partnership at any time in the particular fiscal period carries on a business in a country with which the Government of Québec or of Canada at that time has not entered into a tax agreement; and
  4. the particular person or the particular partnership deducts in computing income under Part I of the Act for the particular taxation year or particular fiscal period, as the case may be, a total amount of not less than $1,000,000 relating to amounts each of which is paid or payable to the other person or other partnership referred to in subparagraph c, other than an amount paid or payable as consideration for the acquisition of corporeal property.

For the purposes of subparagraph c of the first paragraph, a person resident in a dependency, possession, department, protectorate or region of a country with which the Government of Québec or of Canada has entered into a tax agreement and to which the provisions of the tax agreement do not apply is considered to be resident in a country with which the Government of Québec or of Canada has not entered into a tax agreement.

For the purposes of the first paragraph, a person that is a member of a partnership that itself is a member of another partnership is deemed to be a member of that other partnership.

The particular person or the members of the particular partnership are required to disclose a specified transaction in relation to a transaction referred to in the first paragraph.

The obligation to disclose the specified transaction applies as of the day that is 60 days before the particular person's filing due-date for the person's particular taxation year or before the filing due-date of the member of the particular partnership for the member's taxation year in which the particular fiscal period ends, as the case may be.

Included transaction

Without limiting the scope of the determined transaction, a transaction or series of transactions is included when Revenu Québec considers that it falls under the general definition of a determined transaction.

There are no included transactions at this time.

Excluded transaction

A transaction or series of transactions is excluded when Revenu Québec considers that it does not fall under the general definition of a determined transaction or is excluded from its application.

There are no excluded transactions at this time.

Who must make the disclosure

The particular person or the particular partnership must disclose such a specified transaction.

Disclosure deadline

The 60-day deadline for disclosing such a specified transaction is calculated from the day that is 60 days before the particular person's filing due-date for the person's particular taxation year or before the filing due-date of the member of the particular partnership for the member's taxation year in which the particular fiscal period ends, as applicable.

In other words, the disclosure deadline should generally be the same as the taxpayer's regular filing due-date.

The obligation to disclose such a specified transaction applies if the transaction begins after the date the transaction determined by the Minister to which the specified transaction relates is published in the Gazette officielle du Québec. For purposes of determining when the specified transaction began, the reference to a series of transactions is deemed not to include transactions and events completed in order to conduct the series and therefore excludes related or preliminary transactions and events.

For example, in the case of the determined transaction called  “payment to a non-treaty country,” the constitution of distinct entities in other jurisdictions is not part of the specified transaction. However, crossborder payments between entities not dealing at arm's length are included. As a result, if the foreign entities were constituted before March 18, 2021, but the payments were made on or after that date, the obligation to disclose the transaction would apply, provided that the other conditions regarding the determined transaction were met.

Multiplication of the capital gains deduction

Description

The capital gains deduction allows individuals to exempt the gain resulting from the disposition of qualifying small business corporation shares. Tax planning is sometimes used to multiply the deduction for a group of individuals. 

The determined transaction targets transactions used to multiply the capital gains deduction. Generally speaking, it covers the following situations:

  1. A person (generally the business owner) uses accommodators to claim multiple capital gains deductions, often through a trust, and receives all or part of the accommodators' gains.
  2. The shareholder's spouse becomes a shareholder in order to claim multiple capital gains deductions by manipulating the attribution rules between spouses.

Determined transaction

A transaction that includes the following facts is hereby determined by the Minister:

  1. an individual subject to tax under Part I of the Act or a trust under which the individual is a beneficiary disposes of a share of the capital stock of a Canadian-controlled private corporation;
  2. the share is a qualified small business corporation share;
  3. in respect of the disposition, the individual deducts an amount under section 726.7.1 of the Act in computing taxable income for a taxation year; and
  4. either of the following conditions is met:
    1. the individual transfers or loans, directly or indirectly, in any manner whatever, including by means of a trust or a corporation, or by repayment of existing indebtedness, an amount that may reasonably be considered to be, directly or indirectly, part or all of the proceeds of the disposition of the share, to either
      1. a particular person that is a shareholder of the corporation referred to in subparagraph a or would be such a shareholder if section 21.18 of the Act applied and were read without reference to "specified", wherever that term appears, or that was previously such a shareholder of the corporation; or
      2. a person that does not deal at arm's length with the particular person; or
    2. the individual acquired a share of a person who is the individual's spouse as part of a transfer referred to in section 454 of the Act and a valid election under the second paragraph of that section 454 was made by the individual's spouse, with the result that the provisions of section 454 do not apply to the transfer.

For the purposes of the first paragraph, an individual who expressly or implicitly undertook to transfer or loan part or all of the proceeds of the disposition of a share is deemed to have made the transfer or loan at the time of the undertaking.

An individual referred to in the first paragraph is required to disclose a specified transaction in relation to a transaction referred to in the first paragraph.

The obligation to disclose the specified transaction applies as of,

  1. if the day of the transfer or loan referred to in subparagraph i of subparagraph d of the first paragraph is before the day on which the share referred to in subparagraph a of that paragraph is disposed of, the day of the disposition; or
  2. if the day of the transfer or loan referred to in subparagraph i of subparagraph d of the first paragraph is the day on which the share referred to in subparagraph a of that paragraph is disposed of or is later than that day, the day of the transfer or loan.

Included transaction

Without limiting the scope of the determined transaction, a transaction or series of transactions is included when Revenu Québec considers that it falls under the general definition of a determined transaction.

The determined transaction includes the factual situations described in the following decisions:

  1. Laplante v. R., 2017 CCI 118.  Confirmed decision:  2018 FCA 193.
  2. Gervais v. Canada, 2018 FCA 3.

Excluded transaction

A transaction or series of transactions is excluded when Revenu Québec considers that it does not fall under the general definition of a determined transaction or is excluded from its application.

There are no excluded transactions at this time.

Who must make the disclosure

An individual who is party to such a specified transaction must disclose it.

Disclosure deadline

The 60-day deadline for disclosing such a specified transaction is calculated from one of the following dates, as applicable:

  • in the case where accommodators are used to multiply the capital gains deduction, the later of the following:
    • the date the qualified shares are disposed of,
    • the date of the transfer or loan;
  • in the case of a transfer to a spouse, the date the qualified shares are disposed of.

The obligation to disclose such a specified transaction applies if the transaction begins after the date the transaction determined by the Minister to which the specified transaction relates is published in the Gazette officielle du Québec. For purposes of determining when the specified transaction began, the reference to a series of transactions is deemed not to include transactions and events completed in order to conduct the series and therefore excludes related or preliminary transactions and events.

For example, in the case of the determined transaction called “multiplication of the capital gains deduction,” the creation of the trust is not part of the specified transaction. However, the disposition of the shares is included. As a result, if the trust was created before March 18, 2021, but the shares were disposed of on or after that date, the obligation to disclose such a specified transaction would apply, provided that the other conditions regarding the determined transaction were met.

Tax attribute trading

Description

Tax law contains rules restricting the use of tax attributes further to the acquisition of control of a corporation or trust. Although attribute trading between unaffiliated persons is prohibited, aggressive tax planning exists to get around the restrictions.

Generally speaking, the determined transaction targets the following planning strategies:

  1. The use of one taxpayer's tax attributes (for example, operating losses, tax credits that can be carried forward and the balance of scientific research and experimental development expenses) by another taxpayer that is not affiliated with the taxpayer immediately before the start of the series of transactions.
  2. The use, resulting in a loss, of tax attributes by a corporation or trust further to its capitalization by a third party in order to carry on a new business, if there is a relationship between the capitalization and the use of the corporation's or trust's tax attributes.

Determined transaction

The following transactions are hereby determined by the Minister:

  1. a transaction in relation to a tax attribute, contemplated by the definition of "attribute trading restriction" in section 21.4.2.1 of the Act, that is generated in respect of a taxpayer, referred to in this subparagraph as the "initial taxpayer", other than a tax-exempt taxpayer, as part of the transaction or before the beginning of the transaction, if the transaction includes the following facts:
    1. a particular taxpayer is subject to tax under Part I of the Act at a particular time in the transaction; and
    2. the particular taxpayer uses the tax attribute generated in respect of the initial taxpayer;
  2. a transaction in relation to a tax attribute, contemplated by the definition of "attribute trading restriction" in section 21.4.2.1 of the Act, that is generated in respect of a corporation or a trust, referred to in this subparagraph as the "specific taxpayer", other than a tax-exempt taxpayer, as part of the transaction or before the beginning of the transaction, if the transaction includes the following facts:
    1. a person or a partnership acquires,
      1. if the specific taxpayer is a corporation, a share of the capital stock of the specific taxpayer or a right referred to in paragraph b of section 20 of the Act relating to such a share; or
      2. if the specific taxpayer is a trust, a capital interest or an income interest in the specific taxpayer or a right, whether immediate or future and whether absolute or contingent, to such an interest;
    2. the specific taxpayer is subject to tax under Part I of the Act at a particular time in the transaction;
    3. the specific taxpayer uses the tax attribute;
    4. if the specific taxpayer carried on a business prior to the beginning of the transaction, either, or both, of the following conditions are met:
      1. the specific taxpayer ceases to carry on the business in the course of the transaction; or
      2. the specific taxpayer begins to carry on a new business in the course of the transaction; and
    5. the use of the tax attribute to which subparagraph iii refers is one of the results derived, directly or indirectly, from the acquisition by the person or the partnership of the share, the right to a share, an interest or the right to an interest referred to in subparagraph i.

For the purposes of subparagraph ii of subparagraph a of the first paragraph and subparagraph iii of subparagraph b of that paragraph, a taxpayer that is a member of a partnership that generates or uses a tax attribute is deemed to generate or use the tax attribute.

For the purposes of subparagraph a of the first paragraph, "tax-exempt taxpayer" means

  1. a taxpayer in respect of whom section 21.4.2.3 of the Act applies in relation to the tax attribute referred to in that subparagraph a; and
  2. a taxpayer with whom the particular taxpayer is affiliated.

For the purposes of subparagraph b of the first paragraph, "tax-exempt taxpayer" means a taxpayer in respect of whom section 21.4.2.3 of the Act applies in relation to the tax attribute referred to in that subparagraph b.

The particular taxpayer referred to in subparagraph a of the first paragraph is required to disclose a specified transaction in relation to a transaction referred to in that subparagraph a.

The specific taxpayer, within the meaning of subparagraph b of the first paragraph, is required to disclose a specified transaction that relates to a transaction referred to in that subparagraph b.

The obligation to disclose the specified transaction in relation to a transaction referred to in subparagraph a of the first paragraph applies as of the day that is 60 days before the particular taxpayer's filing due-date for the first taxation year in respect of which the particular taxpayer uses the tax attribute referred to in that subparagraph a.

The obligation to disclose the specified transaction in relation to a transaction referred to in subparagraph b of the first paragraph applies as of the day that is 60 days before the specific taxpayer's filing due-date for the first taxation year in respect of which the specific taxpayer uses the tax attribute referred to in that subparagraph b.

Included transaction

Without limiting the scope of the determined transaction, a transaction or series of transactions is included when Revenu Québec considers that it falls under the general definition of a determined transaction.

The determined transaction includes the factual situations described in the following decisions:

  1. Birchcliff Energy Ltd. v. Canada, 2019 FCA 151.
  2. Canada v. Deans Knight Income Corporation, 2021 FCA 160.

Excluded transaction

A transaction or series of transactions is excluded when Revenu Québec considers that it does not fall under the general definition of a determined transaction or is excluded from its application.

The following planning strategies are excluded:

  1. the use of tax attributes generated in respect of one taxpayer (the initial taxpayer) by another taxpayer (the particular taxpayer) that was related to the initial taxpayer immediately before the start of the series of transactions;
  2. the use of tax attributes generated in respect of a corporation or a trust (the specific taxpayer) further to the acquisition, by a person that was related to the specific taxpayer immediately before the start of the series of operations, of either of the following:
    • if the specific taxpayer is a corporation, a share of the capital stock of the specific taxpayer or a right to such stock referred to in paragraph (b) of section 20 of the Act, or
    • if the specific taxpayer is a trust, a capital interest or an income interest in the specific taxpayer or a right, whether immediate or future and whether absolute or contingent, to such an interest.

Who must make the disclosure

  • The particular taxpayer, within the meaning of subparagraph (a) of the first paragraph of the description of the determined transaction above, must disclose any specified transaction related to an operation described in that subparagraph.
  • The specific taxpayer, within the meaning of subparagraph (b) of the first paragraph of the description of the determined transaction above, must disclose any specified transaction related to an operation described in that subparagraph.

Disclosure deadline

  • The 60-day deadline for disclosing a specified transaction regarding a transaction referred to in subparagraph (a) of the first paragraph of the description of the determined transaction above is calculated from the day that is 60 days before the particular taxpayer's filing due-date for the first taxation year in respect of which the particular taxpayer uses the tax attribute referred to in subparagraph (a). In other words, the disclosure deadline should generally be the same as the particular taxpayer's regular filing due-date.
  • The 60-day deadline for disclosing a specified transaction regarding a transaction referred to in subparagraph (b) of the first paragraph of the description of the determined transaction above is calculated from the day that is 60 days before the specific taxpayer's filing due-date for the first taxation year in respect of which the specific taxpayer uses the tax attribute referred to in subparagraph (b). In other words, the disclosure should generally be the same as the specific taxpayer's regular filing due-date.

The obligation to disclose such a specified transaction applies if the transaction begins after the date the transaction determined by the Minister to which the specified transaction relates is published in the Gazette officielle du Québec. For purposes of determining when the specified transaction began, the reference to a series of transactions is deemed not to include transactions and events completed in order to conduct the series and therefore excludes related or preliminary transactions and events.

For example, in the case of tax attribute trading, the generation of the tax attribute in respect of the initial or specific taxpayer is not part of the specified transaction. However, the use of the tax attribute referred to in subparagraph (iii) of the description of the determined transaction above is included. As a result, if the tax attribute was generated before March 18, 2021, but was used on or after that date, the obligation to disclose such a specified transaction would apply, provided the other conditions regarding the determined transaction were met.

Disclosure date

The taxpayer's disclosure form (TP-1079.DI-V) must be filed by the later of the following dates: 

  • 60 days after the day determined by the minister; 
  • 120 days after the day on which the Minister published the determined transaction to which the specified transaction relates in the Gazette officielle du Québec.

A disclosure made by a member of a partnership is deemed to have been made by each other member of the partnership.

The adviser's or promoter's disclosure form (TP-1079.CP-V) must be filed by the later of the following dates:

  • 60 days after the day on which the adviser or promoter first commercialized or promoted the transaction;
  • 120 days after the day on which the Minister published the determined transaction to which the transaction relates in the Gazette officielle du Québec
Important

The texts for the determined transactions above are taken directly from the Gazette officielle du Québec. In the event of a discrepancy, the Gazette prevails.

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