Update on the new obligation to disclose nominee agreements

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

Did you know that it is necessary to disclose nominee agreements to Revenu Québec?

On September 24, 2020, 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] (the “Act”) was sanctioned, which provides for this new obligation. As a reminder, the Ministère des finances du Québec issued Information Bulletin 2019-5 on May 17, 2019[3] which clarified 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 which is:

1. entered into after May 16, 2019 in the course of a transaction having tax consequences under the Act (“Tax Consequences”); or
2. entered into before May 17, 2019, if the Tax Consequences of the transaction or the series of transactions to which the nominee agreement relates continue on or after that date.

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 contract has already been disclosed to Revenu Québec in a corporate income tax return.

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.

Since the Act does not provide a definition for the term “tax consequences”, we must refer to the general interpretation of the term “tax consequences”. Revenue Québec has indicated that the term “tax consequences” means “tax consequences with respect to income tax”. A case-by-case analysis will therefore be necessary to assess whether the disclosure obligation applies to a nominee contract or not.

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; and
• Other information requested in the prescribed form[5].

When is the disclosure required?

A nominee agreement will have to be disclosed within the following delays:

• For nominee agreements entered into after September 24, 2020: The 90^th day following the effective date of the agreement; or
• For nominee agreements entered into before or on September 24, 2020: December 23^rd, 2020.

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 usual prescription period of three years would therefore be suspended and would only begin to run for the parties when the relevant nominee agreement is disclosed. This suspension would allow the Minister to redetermine the tax, interest and penalties or any other amount and make a redetermination, reassessment or additional assessment for the taxation year in respect of the particular taxpayer, despite the expiration of the usual time limits to do so.

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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