Executive Summaries Oct 13, 2020
Adoption of Bill 42: Mandatory Disclosure of Nominee Agreement with Tax Consequences
On September 23, 2020, Bill 42, An Act to give effect to fiscal measures announced in the Budget Speech on March 21, 2019 and to various other measures, was adopted by the National Assembly of Quebec and passed into law the following day. This bill provides for the obligation to disclose to Revenu Québec all nominee agreements entered into in the course of a transaction having "tax consequences".
What is a Nominee Agreement?
In the province of Quebec, nominee relationships are governed by the rules of the mandate. Essentially, the nominee, called a "Mandatary", performs a legal act with a third party for and on behalf of another person, called the "Mandator", typically without disclosing his or her role as representative. A classic example would be for a nominee to acquire an immovable property as a purchaser, to sign the deed of sale with the seller without specifying his status to the latter and thus allowing the Mandator for whom he is acting to become the actual owner of the asset. In the eyes of the public and the seller, the nominee is the owner of the immovable property. However, in our example, considering the nominee agreement previously entered into between the Mandator, the future real purchaser, and the nominee, the actual intention of the parties has been clearly established, thus allowing the legal benefits of the deed of sale to take place in favor of the Mandator.
There are several legitimate reasons for entering into a nominee agreement, which are entirely legal contracts.
Which Nominee Agreements Must be Disclosed?
A party to a nominee agreement entered into in the course of a transaction having tax consequences has to disclose this document to Revenu Québec if:
- the nominee agreement was entered into after May 16, 2019; or
- the nominee agreement was executed prior to May 17, 2019, and the tax consequences of the transaction in the course of which the nominee agreement was entered into continue after May 16, 2019.
The obligation to disclose the nominee agreement is imposed on the members of a partnership when the partnership is a party to the agreement, except for a limited partnership, in which case only its general partners are required to disclose the agreement.
Steps for Mandatory Disclosure.
Disclosure must be made on the prescribed form TP-1079.PN and shall include, among other things:
- the date the nominee agreement was entered into;
- the identity of the parties to said nominee agreement; and
- a complete description of the facts of the transaction to which said nominee agreement relates, as well as the identity of each person or entity for whom the transaction has tax consequences.
Disclosure to Revenu Québec must be made no later than the later of the following dates:
- (i) the 90th day after the date on which the nominee agreement was entered into; or
- (ii) the 90th day following the date on which the bill related to the mandatory disclosure of nominee agreements received assent, i.e. December 23, 2020.
For example, in the case of a nominee agreement entered into before May 17, 2019, but for which the tax consequences of the transaction to which it relates continue after May 16, 2019, the deadline for disclosure is December 23, 2020.
Failure to file the mandatory disclosure exposes the parties to fines of up to $5,000.
Broad and Liberal Interpretation of the Term "Tax Consequences"
The term "tax consequences" is broadly interpreted by Revenu Québec. Therefore, most nominee agreements in a commercial context are subject to the disclosure obligation.
For example, a nominee agreement entered into for the acquisition of an immovable by a nominee will inevitably have tax consequences. In fact, the legal effects of the deed of sale benefit the beneficial owner of the immovable; therefore, the adjusted cost base of the immovable is the beneficial owner’s tax attribute. The attribution of the adjusted cost base of the immovable to the beneficial owner is a tax consequence of the transaction in the course of which the nominee agreement was entered into and will trigger the obligation to disclose the nominee agreement according to Revenu Québec.
These examples are for illustrative purposes only, the obligation to disclose a nominee agreement will depend on the specific circumstances of the transaction in question. An exhaustive analysis of all relevant facts will need to be made to determine whether, in a particular case, a nominee agreement is or was entered into in the course of a transaction having "tax consequences".
However, in light of Revenu Québec's broad and liberal interpretation of the notion of " tax consequences ", we invite you to act cautiously in order to meet the disclosure obligations of nominee agreements.
Any Questions? We Are Here to Help.
If you have ever entered into a nominee agreement, we can help you determine if the disclosure obligation applies to you and assist you with the mandatory disclosure. Do not hesitate to contact us.
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