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.

A series of transactions is excluded only if the entire series is covered by the exclusion.

The following transactions are excluded from determined transactions:

1. The transfer of a given property by a trust to a trust referred to in subparagraph (f) of the first paragraph of the description of the determined transaction above (the transferee trust) if any of the following conditions are met:
   • The transferee trust is subject to the rules in section 656.9 of the Taxation Act and, as a result, the disposition day mentioned in that section is deemed to be the same as that for the trust referred to in subparagraphs (a), (b) and (d) of the first paragraph of the description of the determined transaction above.
   • The date of the deemed disposition under section 653 of the Act for the transferee trust is the same or earlier than the date that would have applied for the trust referred to in subparagraphs (a), (b) and (d) of the first paragraph of the description of the determined transaction above.

   This exclusion applies for transfers carried out after April 22, 2022.

2. The transfer of a given property, directly or indirectly, from one trust to another if, after the particular time in subparagraph (d) of the first paragraph of the description of the determined transaction above, the trust that, directly or indirectly, holds the given property or another property whose fair market value arises directly or indirectly from the given property, or property substituted for either the given property or the other property, as applicable, is one of the following:
   • a spousal trust as defined in section 652.1 of the Act;
   • an alter ego trust as defined in section 652.1 of the Act;
   • a joint spousal trust as defined in section 652.1 of the Act;
   • a self-benefit trust referred to in paragraph (c) of section 454.1 of the Act.

This exclusion applies for transfers carried out after April 22, 2022. 

Who must make the disclosure

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

As a result, both the trust referred to in subparagraph (d) of the first paragraph of the description of the determined transaction (the trust that is distributing the given property) and the trust referred to in subparagraph (f) (the trust that holds the property after the distribution) are responsible for disclosing the transaction.

However, Revenu Québec will consider that the trust referred to in subparagraph (f) has met the obligation to disclose the transaction if the trust referred to in subparagraph (d) files the duly completed prescribed form by the legal deadline. The identification number assigned to the trust referred to in subparagraph (d) must be entered on the form, as must the number assigned to the trust referred to in subparagraph (f), if applicable.

That said, both trusts (those referred to in subparagraphs (d) and (f)) are liable for the penalties and other consequences provided for under the Act if the duly completed prescribed form is not filed by the legal deadline.

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.

The determined transaction was published in the Gazette officielle du Québec on March 17, 2021.

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 the deduction relating to one or more payments made by a person or partnership during a taxation year or fiscal period to one or more entities that are located in a jurisdiction that has not entered into a tax treaty with Québec or Canada and with which it is not dealing at arm's length during the given year or period.

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

Determined transaction

Since June 29, 2022:

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, the person is subject to tax under Part I of the Act for a particular taxation year in which the transaction occurs;
   2. (subparagraph repealed);
   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. (subparagraph repealed);
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 or particular fiscal period, as the case may be, 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 taxation year or particular fiscal period, as the case may be, 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 particular amount paid or payable to another person or another 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 if the aggregate of all amounts, each of which is an amount meeting the following conditions, is at least equal to $1,000,000:

1. it is a particular amount referred to in subparagraph d of the first paragraph; and
2. it is deducted:
   1. by the particular person or particular partnership in computing income for the particular taxation year or particular fiscal period, as the case may be; or,
   2. if the particular person or particular partnership is a member of an associated group in the particular taxation year or particular fiscal period, as the case may be, by another member of the associated group in computing income for that member's taxation year or fiscal period that ends in the particular taxation year or particular fiscal period.

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.

Before June 29, 2022:

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 members of the particular partnership are required to disclose a specified transaction in relation to a transaction referred to in the first paragraph if the aggregate of all amounts, each of which is an amount meeting the following conditions, is at least equal to $1,000,000:

1. it is a particular amount referred to in subparagraph d of the first paragraph; and
2. it is deducted:
   1. by the particular person or particular partnership in computing income for the particular taxation year or particular fiscal period, as the case may be; or,
   2. if the particular person or particular partnership is a member of an associated group in the particular taxation year or particular fiscal period, as the case may be, by another member of the associated group in computing income for that member's taxation year or fiscal period that ends in the particular taxation year or particular fiscal period.

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.

The determined transaction was published in the Gazette officielle du Québec on March 17, 2021.

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

Since June 29, 2022:

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, a trust or a partnership 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.

The individual referred to in the subparagraph c of 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 subparagraph i of subparagraph d of the first paragraph applies and:
   1. the day of the transfer or loan 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. the day of the transfer or loan 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; or
2. if subparagraph ii of subparagraph d of the first paragraph applies, the day on which the share referred to in that subparagraph ii is acquired.

Before June 29, 2022: :

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. The Queen, 2017 TCC 118. Confirmed decision: 2018 FCA 193.
2. Gervais v. Canada, 2018 FCA 3.
3. Mony c. Le Roi, 2022 CCI 120. 

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.

A series of transactions is excluded only if the entire series is covered by the exclusion.

The following transactions are excluded from determined transactions: 

1. The transfer or loan of an amount referred to in subparagraph (i) of subparagraph (d) of the first paragraph of the description of the determined transaction above that is equal to or less than the non-taxable part of the capital gain.

   This exclusion applies for transfers and loans made after April 22, 2022.

2. The transfer or loan of an amount referred to in subparagraph (i) of subparagraph (d) of the first paragraph of the description of the determined transaction above that is equal to or less than the result of A – B – C, where:
   • A is the taxable capital gain;
   • B is the capital gains deduction deducted in calculating taxable income for a taxation year under section 726.7.1 of the Act;
   • C is the income tax at the marginal rate (federal rate plus provincial rate) calculated on the total taxable capital gain, minus the deduction represented by variable B, realized on the disposition.

   This exclusion applies for transfers and loans made after April 22, 2022.

   The exclusions in paragraphs 1 and 2 are cumulative.

3. The allocation by a trust to a beneficiary of a taxable capital gain that is payable by a note if:
   • the note is repaid before the expiry of the 60-day deadline for disclosing a specified transaction that applies to the individual; and
   • it has been established that the repayment was not made as part of a series of transactions and repayments.

   This exclusion applies for allocations made after June 5, 2023.

Who must make the disclosure

An individual, other than a trust, who is referred to in the first paragraph of the description of the determined transaction above must disclose the transaction.

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.

The determined transaction was published in the Gazette officielle du Québec on March 17, 2021.

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

Since June 29, 2022:

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, referred to as the “purchaser” in this paragraph and in the fourth paragraph, acquires, directly or indirectly in any manner whatever:
      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 before the beginning of the transaction, any of the following conditions are met:
      1. the specific taxpayer ceases to carry on the business or begins to carry on a new business as part of the transaction;
      2. the specific taxpayer, in the course of the transaction, earns income from property the taxpayer acquired as part of the transaction, or held immediately before the beginning of the transaction and was not using to earn income from property at that time; or
      3. the specific taxpayer realizes a capital gain from the disposition of property acquired as part of the transaction;
   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 purchaser of the share, the right to a share, an interest or the right to an interest referred to in subparagraph i, or from the transfer or loan of property to the specific taxpayer, as part of the transaction, by the purchaser or by a person or partnership with which the purchaser does not deal at arm's length at the time of the transfer or loan.

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 which section 21.0.6 of the Act applies in the course of the transaction in relation to the tax attribute referred to in that subparagraph a; and
2. a taxpayer with which the particular taxpayer is affiliated throughout the period that begins immediately before the beginning of the transaction and ends at the time of the last use of the tax attribute in connection with the transaction.

For the purposes of subparagraph b of the first paragraph, “tax-exempt taxpayer” means:

1. a taxpayer in respect of which section 21.0.6 of the Act applies in the course of the transaction in relation to the tax attribute referred to in that subparagraph b;
2. a taxpayer with which each of the purchasers is affiliated throughout the period that begins immediately before the beginning of the transaction and ends at the time of the last use of the tax attribute in connection with the transaction.

For the purposes of subparagraph b of the third and fourth paragraphs, the following rules apply:

1. a corporation, trust or partnership that is constituted or begins to exist, otherwise than by reason of an amalgamation or merger, at a particular time as part of the transaction is deemed to have existed throughout the period that begins immediately before the beginning of the transaction and ends at the time immediately preceding the particular time and to have had throughout that period the same shareholders, beneficiaries or members, as the case may be, as those it has at the particular time, those shareholders, beneficiaries or members being deemed to hold, throughout that period, the shares of the capital stock of the corporation, interests in the trust or in the partnership, as the case may be, they hold at the particular time;
2. where, at a particular time, two or more particular corporations amalgamate or merge to form a new corporation and the new corporation and the particular corporations would have been affiliated with each other throughout the period that begins immediately before the beginning of the transaction and ends at the time immediately preceding the particular time, if, throughout that period, the new corporation had existed and had had the same shareholders as those it has at the particular time, the new corporation is deemed to have existed throughout that period and to have had, throughout that period, the same shareholders as those it has at the particular time, those shareholders being deemed to hold, throughout that period, the shares of the capital stock of the corporation they hold at the particular time;
3. section 21.0.4 of the Act does not apply.

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.

Before June 29, 2022:

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. Deans Knight Income Corp. v. Canada, 2023 SCC 16.

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.

A series of transactions is excluded only if the entire series is covered by the exclusion.

The following transactions are excluded from determined transactions:

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.

The determined transaction was published in the Gazette officielle du Québec on March 17, 2021.

Description

Section 462.12 of the Act sets out a rule to discourage individuals from using tax planning that would allow them to split their income with designated people by transferring property to a corporation that is not a small business corporation. The term “designated person” means the individual's spouse, a person under 18 not dealing at arm's length with the individual, or the individual's niece or nephew. When the rule applies, the individual is deemed to have received an amount as interest that must be included in the calculation of their income.

Estate freezes involving the exchange of common shares of a corporation that is not a small business corporation for preferred shares of that corporation in favour of a designated person usually give rise to the application of section 462.12 of the Act. Certain plans are used to get around the restriction.

In general terms, the determined transaction targets the following planning strategy: An estate freeze through the payment of a dividend in preferred shares with a high redemption value and a low issued and paid-up capital stock.

Determined transaction

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

1. a stock dividend is declared, at a particular time in the course of the transaction, in respect of a share that an individual, subject to tax under Part I of the Act for a taxation year that includes the particular time, holds, directly or indirectly, in any manner whatever, in the capital stock of a corporation;
2. the fair market value of the share or shares issued or to be issued as the stock dividend is greater than the amount by which the paid-up capital of the shares of the corporation is increased, by reason of the payment of the dividend; and
3. subject to the second paragraph, in the course of the transaction, any of the following conditions is met:
   1. the individual transfers, directly or indirectly, in any manner whatever, a share of the capital stock of the corporation that includes the right to receive the remaining property of the corporation on liquidation and a designated person, in respect of the individual, holds a share of the capital stock of the corporation;
   2. a designated person, in respect of the individual, acquires, directly or indirectly, in any manner whatever, a share of the capital stock of the corporation;
   3. a designated person, in respect of the individual, holds, directly or indirectly, in any manner whatever, a share of the capital stock of the corporation, other than a share of the single class of shares of the capital stock of the corporation that are issued and include the right to receive the remaining property of the corporation on liquidation, that gives the right to receive
      1. a discretionary dividend; or
      2. a dividend in an amount, when considered on an annual basis, that is not reasonable in the circumstances; or
   4. a designated person, in respect of the individual, holds, directly or indirectly, in any manner whatever, a share of a class of the capital stock of the corporation the terms or conditions of which have been modified through a change to the corporation's articles, the fulfilment of a suspensive condition or in any other manner, so that
      1. the right to receive a dividend of the corporation or to receive the remaining property of the corporation on liquidation is created; or
      2. the amount of the dividend declarable by the corporation in respect of the share or the proportion of the property of the corporation receivable on liquidation under the right given by the share, is increased.

For the purposes of subparagraph c of the first paragraph, subparagraphs i to iv of that subparagraph c, as applicable, apply to the designated person, in respect of the individual, only if the person is a specified shareholder of the corporation at any time in the course of the transaction.

A transaction referred to in the first paragraph is not a determined transaction as the result of the application of any of subparagraphs i to iv of subparagraph c of the first paragraph, if the conditions set out in paragraphs a to c of section 462.12.1 of the Act are met in respect of the designated person to which the relevant subparagraph of that subparagraph c applies.

For the purposes of this section,

1. “designated person” has the meaning assigned by section 462.7 of the Act;
2. “specified shareholder” has the meaning that would be assigned by section 21.17 of the Act if the reference in that section to “any other corporation that is related to the corporation” were read as a reference to “any other corporation, other than a small business corporation, that is related to the corporation”, and section 21.18 of the Act were read without reference to its paragraphs a and d.

The individual referred to in subparagraph a of 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 the day on which the stock dividend referred to in subparagraph a of the first paragraph is declared.

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.

A series of transactions is excluded only if the entire series is covered by the exclusion.

There are no excluded transactions at this time.

Who must make the disclosure

The person referred to in subparagraph (a) of the first paragraph of the description of the determined transaction above must disclose the transaction.

Disclosure deadline

The 60-day deadline for disclosing such a specified transaction is calculated from the date the stock dividend is reported.

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.

The determined transaction was published in the Gazette officielle du Québec on May 29, 2024.