Revenu Quebec has issued new disclosure requirements for nominee agreements. They are being put in place to reduce the ability for taxpayers to utilize nominees for tax evasion transactions or conduct retroactive tax planning.
A nominee agreement involves a beneficial owner conveying property to a nominee to hold and/or to transact on behalf of the beneficial owner(s). Although there have certainly been many taxpayers that have used nominee agreements to shelter or evade taxes, there are many legitimate business reasons to transact using a nominee. For example, many real estate joint-ventures will see the co-owners of a rental property choose to transact under the name of one corporation which will hold legal title for administrative ease.
Revenu Quebec has recently announced an extension to the filing deadline which was previously set for September 16th, 2019. The revised deadline will be the latest between 90 days following the conclusion of the nominee agreement, and 90 days following the day the new measures are passed into law.
The information return form has not been issued yet by Revenu Quebec. However, the information that will be required – which can already be included in a letter to Revenu Quebec, until the prescribed form has been issued – should include the following:
- Date of the nominee agreement
- Identity of the parties to the nominee agreement
- Description of the facts to which the nominee agreement relates to
Note that the disclosure by one party of nominee agreement will deem that all parties of the agreement have disclosed.
It is our Firm’s understanding from discussions with Revenu Quebec that the new disclosure will apply to most existing joint-venture real estate arrangements involving a nominee corporation, despite the fact that the corporation has always disclosed on its Quebec tax return that it was a party to a nominee agreement and that the beneficial owners were always reporting their share of the net rental income on an annual basis.
Failure to file the disclosure form or letter before the time limit will lead to a penalty of $1,000 and an additional penalty of $100 per day, up to a maximum of $5,000 or a total maximum penalty of $6,000. The parties to the nominee agreement will be jointly liable for the penalty.
In addition, Revenu Quebec announced that it will amend its tax legislation to suspend the prescription period for any transactions with tax consequences involving a nominee agreement where the disclosure information return had not been filed yet.
Please do not hesitate to contact our team of tax specialists for any specific questions relating to Revenu Quebec’s new nominee disclosure requirements.