Information Bulletin 2019-5 – New Mandatory Disclosure of Nominee Agreements
Further to the statements made in Budget 2019-2020 about strengthening mandatory disclosure mechanisms, and improving rules governing the use of nominees, the ministère des Finances du Québec released Information Bulletin 2019-5 on May 17, 2019 (the “Bulletin”).
A nominee agreement is a mandate under which a person nominates another person to enter into a contract with a third party on his or her behalf, generally without informing the third party that the nominee is acting on his or her behalf. Such agreements are common in real estate transactions.
The Bulletin indicates that Québec tax legislation will be amended such that the parties to a nominee agreement made as part of a transaction or series of transactions will have the obligation to disclose certain information to Revenu Québec (“RQ”). Specifically, the disclosure of a nominee agreement must be made through a prescribed information return, and must include:
- the date of the nominee agreement;
- the identity of the parties to the nominee agreement;
- a full description of the facts of the transaction or series of transactions to which the nominee agreement relates and the identity of any person or entity for which such transaction or series of transactions has tax consequences; and
- any other information requested in the prescribed form.
This information return must be filed with RQ no later than 90 days after the date on which the nominee agreement was concluded. At least one of the parties to the nominee agreement must file the information return. While a prescribed information return has yet to be released, taxpayers subject to Quebec tax laws are advised to disclose the relevant information to RQ in the meantime without the use of a form.
Failure to file the information return within the prescribed time limit will result in the parties to the nominee agreement being jointly liable for a penalty of $1,000 and an additional penalty of $100 per day, up to a maximum of $5,000, starting on the second day of the omission. Such a failure will also result in the prescription period, otherwise applicable to a taxation year for a party to a nominee agreement, to be suspended with respect to the tax consequences arising from a transaction or series of transactions that occurred that year and that are part of the nominee agreement.
The disclosure requirement will apply to nominee agreements concluded on or after May 17, 2019. In addition, a nominee agreement entered into prior to May 17, 2019, that relates to a transaction or series of transactions having tax consequences that continue on or after May 17, 2019, must be disclosed to RQ no later than September 16, 2019.
There is some uncertainty as to the scope of the expression “tax consequences” as it relates to nominee agreements. In the case of real estate transactions, it appears that a nominee agreement entered into before May 17, 2019, might not be subject to the disclosure requirement provided the nominee is not involved in a transaction or series of transaction that have tax consequences on or after May 17, 2019. However, it appears that a situation where a nominee is (for example) declaring rental income or claiming capital cost allowance on or after May 17, 2019, may entail a transaction or series of transactions that have income tax consequences such that the corresponding nominee agreement, even if entered into prior to May 17, 2019, would have to be disclosed. For now, it does not appear that nominee agreements made in the past for Quebec land transfer tax purposes, or other non-income tax purposes such as administrative simplicity, need to be disclosed. This may change as additional guidance from RQ is provided. For now, it appears that nominee agreements made on or after May 17, 2019, must be disclosed, regardless of the reason for the agreement, and perhaps even if there are no "tax consequences" to the agreement.