The Assent of Bill n°42 and the Obligation to Disclose Nominee Agreements
On May 17, 2019, the Minister of Finance of Quebec released an information bulletin implementing, among other items, a mandatory disclosure mechanism with respect to nominee agreements or prête-nom agreements. This disclosure mechanism affects agreements entered into after May 16, 2019 and also all existing agreements that continue to have tax consequences after this date. On September 24, 2020, the bill received assent. Crowe BGK initially published “Introduction by Revenu Québec of a Mandatory Disclosure Mechanism Regarding Nominee Agreements or Prête-Nom Agreements” on May 30, 2019.
Bill n°42 imposes a requirement for a taxpayer who is a party to a nominee agreement entered into in the course of a transaction having tax consequences to file a disclosure of said agreement. Essentially, any new nominee agreement that is entered into and has tax consequences will have to be disclosed no later than 90 days following the date on which the agreement is entered into. With respect to existing agreements that have enduring tax consequences, the deadline to file the disclosure is the later of:
- The 90th day after the date on which the agreement was entered into; and
- The 90th date after the date of assent of Bill n°42 (i.e. December 23, 2020).
The disclosure must be made in prescribed form and sent by registered mail, along with the nominee agreement, counter letter or apparent contract, if it exists.
Amongst other items, the information return asks the taxpayer to disclose information regarding the nominee agreement in place, which includes the following:
- The date the nominee agreement was entered into;
- The identity of the parties to the nominee agreement; and
- A complete description of the facts of the transaction that is sufficiently detailed to allow the Minister to analyze it and have a proper understanding of the tax consequences.
Revenu Quebec will accept one disclosure per nominee agreement, either by the nominee or the mandator. In the case of a limited partnership that is a party to a nominee agreement, the obligation to disclose applies only to all of its general partners, and not to its limited partners.
Failure to file the prescribed form on time results in the imposition of a penalty of up to $5,000, imposed jointly (solidarily) to all the parties to the nominee agreement. The penalty is in an amount of $1,000 on the first day after filing deadline, and an additional penalty of $100 per day for every day the failure continues afterward.
The legislation is also amended to suspend the prescription period applicable to the Quebec income tax related to the undisclosed transaction, until such time that the nominee agreement is disclosed.
In addition to the above-mentioned measure, the information bulletin implemented certain other measures regarding sham transactions and the mandatory disclosure of certain prescribed transactions to be determined from time to time by Revenu Québec.
As a result of the above, if you are a party to a nominee agreement which has tax implications, you should contact your Crowe BGK tax advisor in order to explore your obligations with respect to this nominee disclosure.
About the Authors:
Erin Lesser, LL.B, JD, TEP, is a Tax Specialist at Crowe BGK
Connect with her: [email protected]
Jean-François Senécal, LL.B., D. Fisc., is a Senior Tax Manager at Crowe BGK
Connect with him: [email protected]