Changes Effective in 2023

RRSP/RRIF Reporting Rules

For clients with larger RRSP/RRIF balances,
what appears to be a small administrative change
to the RRSP/RRIF reporting rules could have
significant implications. Until recently
financial institutions were only required to report
to the Canada Revenue Agency (CRA)
contributions and withdrawals from RRSPs/
RRIFs they administer. However, due to concerns
that RRSPs/RRIFs may hold assets that are not
qualified investments, Budget 2022 included
proposals that would require financial institutions
to annually report the total fair market value of
property held in each RRSP/RRIF they administer,
determined at the end of each calendar year.
This will assist the CRA in auditing taxpayers who
own RRSPs/RRIFs to ensure they are complying
with the qualified investment rules.

This requirement will apply to all financial
institutions starting for the 2023 taxation
year. Thus, if you have clients with significant
registered fund balances, you may want to
conduct a review to ensure their registered
investments are qualified investments under
the Act. In any event, you may want to alert
those clients to the fact that the CRA may be
making inquiries as to the types of investments
held in their registered plans.

Mandatory Reporting Rules

Reportable Transaction Rules

Bill C-47 also ushered in new mandatory reporting rules for taxpayers who engage in aggressive tax planning. Under the prior rules,a transaction would be considered a reportable transaction if it was an “avoidance transaction” (as defined for the purposes of the general anti-avoidance rule) and had at least two of the following three hallmarks:

A promoter or tax advisor was entitled to
a “contingency fee” in relation to the
transaction a promoter or tax advisor required
confidential protection (i.e., a non-disclosure agreement)

The taxpayer received protection from
a failure to achieve the intended tax result,
or funding for the defense or dispute of
the tax result.

Under the revised rules, a reportable transaction only requires that the transaction bear one of the three hallmarks noted above. In addition, the definition of “avoidance transaction” is expanded to apply to a transaction if it is reasonable to conclude that one of the main purposes was to obtain a tax benefit.

Where a taxpayer has entered into a reportable transaction, it must be reported within 90 days of the earlier of the day the taxpayer enters into the transaction and the day the taxpayer is contractually obligated to enter into the
transaction (compared to the prior due date of June 30 in the calendar year following the year in which the transaction occurred) implemented before June 22, 2023, where there are subsequent transactions in a “series” relating to the earlier transactions.

There are significant penalties applicable to taxpayers as well as promoters and advisors who do not satisfy their reporting obligations. Given the reportable transaction rules might apply to tax-motivated arrangements involving life insurance, it is important for insurance advisors to determine whether they might have a reporting obligation as a result of implementing an insurance strategy for a client.

In particular, insurance advisors should consult with their client and other professional advisors to investigate if any the noted hallmarks exist (or the transaction is similar to a notifiable transaction), and whether any party plans to report the transaction or series of transactions. If there is any doubt as to whether there is a reporting obligation, advisors should seek their own independent tax advice.

Written by Kevin Wark, LLB, CLU, TEP I CALU Tax Advisor. Content provided with permission by CLU Insider. COMMENT is an informative newsletter targeted to the unique niche that CLU advisors occupy in the financial services industry, with a focus on risk management, wealth creation and preservation, estate planning, and wealth transfer. COMMENT has been an integral part of the CLU environment
since 1967.

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