Jean Marc Gagnon

Income tax anti-avoidance measures in Canada are usually initiated by the Canadian federal government. Not this time.

In October 2009, the Ministry of Finance for the province of Quebec announced revised measures that will generally be applicable to targeted aggressive tax planning transactions (ATP) carried out after October 14 2009. This announcement follows the consultative paper released in January 2009 by Finance Quebec dealing with ATP. That paper, which described the problem relating to tax planning and compared the legislative tools available in Quebec with those available in certain foreign jurisdictions to combat ATP, proposed measures to improve tax administration's tools for fighting it. Several groups responded to this paper and questioned the relevance of the measures and the impact they would have on Quebec's economic competiveness.

The measures retained include a mandatory disclosure mechanism whose objective is to reduce the interval between implementation of an ATP by a taxpayer and identification of the ATP by the tax authorities. Two types of transactions will be subject to the ATP rules: confidential transactions and transactions with conditional remuneration (both defined transactions). The information to be disclosed to the tax authorities, the persons subject to such disclosure and penalties for failure to make it within the prescribed time are also addressed by the measures.

The measures also include amendments to the provincial general anti-avoidance rule (GAAR) which is generally a mirror of the Canadian federal GAAR provision. In particular, although it is recognised that substantive changes to GAAR were not desirable without corresponding changes to the Canadian federal provision, the changes initiated by Finance Quebec include penalties where GAAR will apply, extending the limitation period applicable to such rule, as well as a preventive disclosure mechanism to avoid adverse consequences. None of these measures exist under the Canadian federal income tax regime. It remains to be seen whether the Canadian federal or other provincial governments will consider similar measures.

Jean Marc Gagnon (jean.gagnon@blakes.com)