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Quebec Gets Tougher on Use of Nominee Agreements

26/07/2019


The Quebec government has introduced more changes to the provincial tax regulations as part of its on-going fight against aggressive tax planning. This blog addresses the most recently announced measure targeting nominee agreements, the use of agreements where the true owner(s) of property are not readily identifiable. The new measure can result in loss of tax revenue where the true transactions cannot be identified.

A nominee agreement is a contract where one party (the nominee) agrees to hold title to certain property on behalf of the true beneficial owner and act as its agent to carry out transactions. The intent could be to hide the identify of the owners of the property since only the agent would be reflected on the transaction documents. Nominee agreements are not always used for this purpose. Many such contracts are valid. However, the actions of a few now result in all such agreements having to be disclosed to Revenu Québec to be considered as valid (or not).

Mandatory Disclosure

The changes impact the Quebec sales tax (QST) and are reflected in Information Bulletin 2019-05 by Revenu Québec. As of May 17, 2019, parties involved in a nominee agreement must now disclose they are part of such agreements to the provincial tax agency through at least one of the parties.

The obligation to disclose is mandatory where existing nominee agreements are in place and transactions are to occur or continue on or after that date. The appropriate form should be filed with Revenu Québec no later than September 16, 2019 for prior agreements.

Steps for Disclosure

The disclosure of a nominee agreement must be filed as an information return with Revenu Québec using the prescribed form, no later than 90 days following the execution of the nominee agreement, or by September 16, 2019 for agreements prior to May 17, 2019. The disclosure must contain the following information:

  • Date
  • The identity of all parties to the nominee agreement
  • A complete description of the facts of the transaction or series of transactions and related tax consequences tied to the nominee agreement
  • Any other information as required

Penalty

In the event of non-filing of the prescribed form within the timeframe, the parties on the nominee agreement will be jointly liable for a penalty of up to $5,000, namely an initial penalty of $1,000 and an additional penalty of $100 per day, after the second day until the maximum is reached.

Limitation Period

If the information return is not filed as required, Revenu Québec proposes the limitation period will no longer be applicable for the affected taxation year(s). The limitation period enables the agency to review an agreement otherwise barred by legislation.

Quebec’s tough stance on aggressive tax planning includes not grandfathering existing nominee agreements out of the new reporting requirement. It is important to review your situation and disclose existing or newly created nominee agreements to avoid penalties and ensure your tax strategy continues to be effective.

For more information, contact Jefferson Gomes, Manager, Indirect Tax, at 514. 904.7354 or [email protected].