The Reporting Era of Transparency: Canada’s Notifiable Transaction Regime

In today’s tax landscape, one thing is clear: Transparency and enhanced reporting are now core priorities. Generally speaking, the Canada Revenue Agency (CRA) has traditionally taken a reactive approach to tax planning, through standard audits and reviews. Since 2023, however, with the introduction of Canada’s notifiable transaction regime and the expansion of the reportable transactions rules under sections 237.4 and 237.3, respectively, of Canada’s Income Tax Act (the Act), the CRA has taken a decisive step to get ahead of any transactions and related planning it deems “aggressive.”

This article reviews the notifiable transaction regime and highlights some of the designated transactions that could result in reporting obligations for unsuspecting taxpayers and their advisors.

A regime built for early detection

The policy logic is simple: If a taxpayer enters into a transaction and that transaction is the same or substantially similar to one that has been “designated” as a notifiable transaction by the minister of finance, they must notify the CRA within 90 days.

This 90-day timeline is one of the regime’s most stringent features. It starts from the earliest of the following triggers:

• The day the taxpayer enters into the notifiable transaction;
• The day the taxpayer becomes contractually obligated to enter into the transaction; or
• The day a person enters into a notifiable transaction for the benefit of another taxpayer.

It should be noted that any advisors, promoters, or related parties to the advisors or promoters (discussed further below) are also subject to this same timeline.

The power of “substantially similar”

The entire regime hinges on the phrase “substantially similar,” which was drafted to be as broad as possible. Under the legislation, this doesn’t just mean a carbon-copy replication of a designated transaction; instead, a transaction is considered substantially similar if it:

• Delivers similar types of tax consequences;
• Is either factually similar or based on the same or similar tax strategy; or
• Shares factual patterns with a designated transaction.

As legislated in paragraph 237.4(2)(b) of the Act, the phrase substantially similar “is to be interpreted broadly in favour of disclosure.” Even unintended similarity counts, which means a taxpayer could stumble inadvertently into a designated transaction.

Who must file? More people than you think

While taxpayers are the most obvious candidates, the reporting requirements for notifiable transactions cast a much wider net to include:

• Persons entering into transactions to benefit someone else, such as a corporation that executes a transaction to benefit a shareholder;
• Advisors and promoters, including professionals such as accountants and lawyers; and
• Persons at non-arm’s length to an advisor or promoter who are entitled to a fee.

In simplified terms, an advisor includes any person who provides assistance or advice with respect to creating, developing, planning, organizing, or implementing the notifiable transaction. A promoter, meanwhile, includes any person who promotes or sells an arrangement related to the notifiable transaction. Note that you don’t need to charge a fee to be considered an advisor or promoter, nor does your intention matter. Advisors and promoters are required to file if they knew or should “reasonably be expected to know” that the transaction was notifiable, which is to be determined based from an objective standpoint by reference to all facts and circumstances.¹

Lastly, employees/partners may be exempt when their employer/partnership files, but independent contractors are not. For advisors and promoters, this shifts the professional risk profile significantly. Accordingly, every transaction requires even more consideration.

The penalties

Unfortunately, this is not a “soft compliance” regime, as penalties are structured to be punitive.

For large corporations, the taxpayer penalty is $2,000 per week, up to a maximum of $100,000 or 25% of the tax benefit. For others, the penalty is $500 per week, up to a maximum of $25,000 or 25% of the tax benefit.

For advisors and promoters, the numbers escalate quickly. In addition to fees earned, the penalties include $10,000 plus a charge of $1,000 per day, up to a maximum of $100,000.

Notably, there is no statute of limitations on assessing these penalties. The CRA can revisit a failure to report indefinitely, regardless of the normal statute-barred dates. Moreover, the clock on the reassessment period only begins with respect to the notifiable transactions once the information return is filed.

The good news? A filing is not an admission

Interestingly, filing Form RC312 Reportable Transaction and Notifiable Transaction Information Return does not constitute an admission of wrongdoing or avoidance. It simply acknowledges that the transaction in question falls within the broad sweep of designated transactions.

Inside the designated transactions

At the heart of the regime are five designated transactions (note that these are living templates, and the number may increase in the future):²

1. Straddle loss creation using partnerships

To briefly summarize, these transactions involve the use of financing instruments, such as derivatives, in a straddle arrangement. In these kinds of arrangements, a taxpayer enters into offsetting positions and the loss is realized before year-end while the gain is deferred until the following year.

The CRA specifically mentions the use of partnerships to skirt the anti-avoidance rules in subsections 18(17) to 18(23). Red flags to watch out for include:

• Any derivative-based offset strategy;
• Structures layering partnerships or trusts; and
• Timing designed to harvest losses while deferring gains.

2. Avoidance of the 21-year deemed disposition

Here’s where estate planners and family-enterprise advisors need to pause. For many trusts, subsection 104(4) creates a deemed disposition of capital property at fair market value, crystallizing any resulting gains in a trust, every 21 years. The designated transactions in this category target any attempt to sidestep this reset, either directly or indirectly.

Example: Indirect transfer to another trust

This might involve tax-deferred distributions to a corporate beneficiary when:

• Shares of the corporate beneficiary are owned by a second trust (commonly referred to as a “trust sandwich”); and
• The 21-year anniversary of the second trust is subsequent to the 21-year anniversary of the trust distributing property.

Remember, the reporting obligation may arise even if the transaction wasn’t specifically contemplated for this purpose, and it can arise even if the 21-year anniversary isn’t imminent. Intent doesn’t matter—the effect does.

Example: Transfers involving non-residents

CRA commentary has warned that:

• Gifts of trust property to Canadian corporations with non-resident shareholders may indefinitely defer tax;
• Emigration itself does not trigger tax on certain assets; and
• The death of a non resident triggers no Canadian capital gains tax.

In short, from the CRA’s standpoint, transfers from Canadian trusts involving non-resident beneficiaries are deeply problematic.

Example: Transferring value using dividends

A particularly common structure and potential transactions involving a “trust sandwich” include:

• A redemption of shares triggering a subsection 84(3) deemed dividend to a trust that is designated to a corporate beneficiary owned by a second trust;
• A subsection 112(1) deduction being claimed by the corporate beneficiary, eliminating tax on the dividend; and
• The 21-year anniversary of the second trust being subsequent to the 21-year anniversary of the trust designating the dividend.

These transactions and others, which effectively shift value between trusts tax free, are clear targets under the new rules. The key takeaway is that if any corporate structure includes a “trust sandwich” or a corporate beneficiary directly or indirectly owned by any non-residents, the structure should be revisited to ensure that the 21-year trust disposition rule is managed properly—otherwise these transactions may lead to a reporting obligation.

3. Manipulating bankruptcy status

These are transactions where a person files for bankruptcy, settles or extinguishes the commercial debt while bankrupt, and then has the bankruptcy annulled. By doing this, taxpayers try to avoid income inclusions under the debt-forgiveness rules in sections 80 to 80.04.

4. Avoiding deemed acquisition of control

This transaction targets technical reliance on purpose tests under section 256.1 to prevent the triggering of a deemed acquisition of control (AOC). In plain language, the CRA is focused on situations where the form of the transaction avoids an AOC but the substance achieves access to tax attributes (e.g., loss carry-forwards). For example:

• An investor acquires more than 75% of the fair market value of a loss corporation while avoiding control;
• Ownership is diluted through a second corporation just enough to stay within legislated thresholds; or
• A loss company acquires a profitable company but claims the “purpose test” is not met.

5. Back-to-back financing arrangements

These structures, which are designed to sidestep the thin-capitalization rules for interest deductibility and/or the Part XIII withholding tax, are perhaps the most commercially common scenarios on this list.

Example: The classic three-party structure

• A foreign corporation deposits money with an arm’s-length foreign bank;
• The foreign bank lends to a Canadian corporation (“Canco”);
• Canco pays interest to the foreign bank (at a treaty reduced rate); and
• Canco takes the position that the thin-capitalization restriction and/or Part XIII withholding tax doesn’t apply (or applies at a reduced rate) because the lending party is at arm’s length.

The CRA’s concern in such cases is that the economic lender is effectively acting as the foreign parent.

Other areas that can fall under scrutiny include:

• Cash-pooling arrangements in multinational groups; and
• Indirect financing achieved through related-party deposits or guarantees, where financing could include an equity component.

The CRA has been clear in its guidance that even without an avoidance purpose, these types of transactions may be designated as notifiable.

The new normal

If one theme ties the entire regime together, it’s that the CRA wants prompt visibility, and the legislation enables this.

For taxpayers, the takeaway is to elevate diligence and documentation. For advisors and promoters, the stakes may be even higher—the question is no longer whether the planning is good, but also whether it should be disclosed.

Again, the minister of finance can designate new transactions at any time, which means the list you know today may look different tomorrow. Perhaps the only constant is the need for enhanced reporting and transparency, with serious consequences for non-compliance. Taxpayers and advisors alike need to be aware of these requirements and consider them carefully when undertaking any tax planning.

Tino Chou, CPA is a partner with MNP, where he specializes in a wide variety of sectors, including real estate, technology, consumer goods, and the hospitality industry. He also advises clients on acquisitions and divestitures and succession-planning transactions.

This article was originally published in the March/April 2026 issue of CPABC in Focus.

Footnotes