On January 30, 2009, the Quebec Minister of Finance, Monique Jérôme-Forget, released proposed legislative changes in her fight against aggressive tax planning (ATP). A 132-page working paper serves as background to the public consultation on these proposed measures.

Quebec’s goal is to discourage ATPs by tempering the users’ risk/return ratio and by discouraging the inception and marketing by tax advisors of “off the shelf” tax products.

The proposed changes target tax avoidance transactions which respect the letter of the law but abuse its spirit. These transactions effectively reduce taxes payable to a level lower than what is intended by tax policy. This global phenomenon is not new in Quebec, although its propagation to a growing number of taxpayers is more recent. Quebec believes that were it not for the tax authorities’ intervention in the last few years in order to put an end to certain ATPs, Quebec’s financial losses could have reached about half a billion dollars.

To counter ATPs, the Minister of Finance proposes the following:

  • a mandatory early disclosure regime compelling the taxpayer to disclose either a transaction providing a tax advantage where the contract between the taxpayer and the advisor includes a confidentiality undertaking by the taxpayer, or a transaction where the advisor’s remuneration is conditional;
  • a penalty between $10,000 and $100,000 for failure to make the disclosure within the required timeframe;
  • a suspension of the limitation period where transactions are not disclosed;
  • a tightening of the general anti-avoidance rule (“GAAR”) by extending the limitation period by three years where GAAR applies and by adding a penalty regime where GAAR applies equal to 25% of the additional tax arising from the application of GAAR where the taxpayer is concerned and to 12.5% of the amounts received or to be received in respect of the avoidance transaction where the promoter is concerned. These new sanctions could be avoided by making a preventive disclosure or a mandatory early disclosure.

The proposed new rules were inspired by legislative tools from the United States, United Kingdom, Australia, New Zealand and Ireland.

The Minister of Finance invites all interested persons to file a submission to the proposed amendments with their comments before April 1st, 2009.