Reportable transaction (s. 237.3)

Advisers and parties to a tax-planned reorganization before a sale meet this rule. Section 237.3 defines an avoidance transaction as one where it may reasonably be considered that one of the main purposes of the transaction, or of a series of transactions of which it is a part, is to obtain a tax benefit. Subsection 237.3(14) excludes certain tax shelters and flow-through shares for which an information return has been filed. See whether the CRA can challenge a reorganization done before a sale and the general anti-avoidance rule.

The three tests

• An advisor or promoter, or a person not dealing at arm’s length with them, has or had an entitlement to a fee (other than one for a form under subsection 37(11)) that to any extent is based on the amount of a tax benefit, is contingent on obtaining one or may be refunded or reduced if it is not obtained, or is attributable to the number of persons who participate or who have been given access to the advice
• An advisor or promoter, or a person not dealing at arm’s length with them, obtains or obtained confidential protection that provides confidentiality in respect of a tax treatment, from a person the section describes, such as a person the advisor was engaged to advise
• The person, someone who entered into the transaction for that person’s benefit, an advisor or promoter, or a person not dealing at arm’s length with any of them has or had contractual protection other than through a fee in the first test; the definition excludes standard professional liability insurance and certain protection integral to an arm’s length agreement to sell all or part of a business

Who files, and what to ask

Subsection 237.3(2) lists who must file an information return: each person for whom a tax benefit results or is expected, a person who entered into the transaction for that person’s benefit, and advisors or promoters, and persons not dealing at arm’s length with them, who are entitled to the fees it describes. Subsection 237.3(4) says this does not apply to a person solely because they provided clerical or secretarial services. The CRA’s return is Form RC312, which also covers notifiable transactions under section 237.4. Ask the seller’s tax adviser whether any step in a reorganization carried one of these features and whether a return was filed; subsection 237.3(5) sets the time for filing.