New obligation to disclose nominee agreements

Jules Gaudin and Amélie Côté [1]
ROBIC, LLP
Lawyers, Patent and Trademark Agents

Did you know that it is necessary to disclose nominee agreements to Revenu Québec? Since the introduction of Bill 42 An Act to give effect to fiscal measures announced in the Budget Speech delivered on 21 March 2019 and to various other measures[2] (“Bill 42“), this disclosure is required for any nominee contract entered into after May 16, 2019 or entered into before May 17, 2019, if the tax consequences of the transaction to which the nominee agreement relates continue on or after that date. The Ministère des finances du Québec issued Information Bulletin 2019-5 on May 17, 2019[3] (the “Bulletin“) which clarifies this mandatory disclosure mechanism and the new rules relating to nominees.

The purpose of this notice is to summarize the terms and conditions of this new obligation and to explain its implementation.

Who must comply?

This measure will apply to any nominee agreement concluded on or after 17 May 2019.

As a reminder, a nominee agreement is a mandate whereby one person, the principal, gives power to another person, the agent, to enter into a contract with a third party on its behalf. The objective is generally to do so without disclosing to the third party that the agent is acting on behalf of the principal, the agent presenting themselves to the third party as acting in their own name. This is a common form of contract in real estate transactions, particularly where it is desirable for a party to remain anonymous to protect, for example, the confidentiality of investments.

This measure also applies to contracts that would have been concluded before 17 May 2019 if the tax consequences of the transaction or series of transactions to which a nominee agreement relates have an impact on or after 17 May 2019. There is no time limit in the past on the application of this measure. This disclosure is necessary even if the existence of the nominee agreement has already been disclosed to Revenu Québec in a corporation’s income tax return.

In summary, as long as the tax consequences have an impact on or after 17 May 2019, the measure will apply to the agreement in question.

What needs to be disclosed?

Disclosure should be made using the form[4] prescribed by Revenu Québec. The parties to the nominee agreement to be disclosed should indicate:

• The date of the nominee agreement,
• The identity of the parties to the nominee agreement,
• A complete description of the facts relating to the transaction or series of transactions to which the nominee agreement relates and the identity of any person or entity for which such transaction or series of transactions has tax consequences,
• Other information requested in the prescribed form.

When is the disclosure required?

Further to a communication dated 22 August 2019[5], an extension was granted regarding the filing deadline for information returns. The objective is to allow the persons and entities concerned to meet this new obligation in an optimal manner.

A nominee agreement will have to be disclosed by the latest of the following dates:

– The 90th day following the date of conclusion of the agreement,

– The 90th day after the date of assent of the forthcoming Bill 42 containing measures relating to the obligation to disclose a nominee agreement.

It should be noted that Bill 42 has not yet received assent, but in accordance with tax principles, tax laws are applicable as soon as they are announced by the Minister of Finance. It is therefore retroactive legislation and it will be important to comply quickly with the new obligations when they become applicable.

What are the consequences of failing to disclose?

In the event of failure to provide the prescribed information by the applicable time limit, the parties to the relevant nominee agreement are jointly liable to a penalty of $1,000, plus an additional penalty of $100 per day, beginning on the second day of the omission, up to a maximum of $5,000.

In addition, if such declaration is not duly filed within the applicable time limit, the prescription period that would otherwise be applicable to a taxation year of a person who is a party to the nominee agreement will be suspended with respect to the tax consequences resulting from a transaction or series of transactions that occur in that year and that are within the scope of the nominee agreement. The prescription period of usually three years would therefore be extended and would only begin to run for the parties when relevant nominee agreement is disclosed.

Comment

In the alternative, it should be noted that the scope of the term “tax consequences” remains uncertain. It will therefore be difficult to assess whether an existing nominee agreement and related transactions continue to have tax consequences on or after May 17, 2019, justifying the disclosure of information relating thereto.

For more information regarding these new obligations, please do not hesitate to contact one of the members of our Transactional and Business Law sector!

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