Under proposed 237.3 of the Income Tax Act, a "reportable
transaction" is an avoidance transaction that has two of three
"hallmarks" (fee hallmark, confidential protection
hallmark, or contractual protection hallmark). For a brief summary
of proposed s. 237.3, see "Tax Avoidance Transaction
Reporting" by Brian Carr and Zahra Nurmohamed in Resource Sector Taxation (vol. VIII, no.
Based on the definition "confidential protection", the
circumstances described in paragraph (b) of the definition
"reportable transaction" would exist in respect of an
avoidance transaction or series of transactions that includes the
avoidance transaction if an advisor or promoter in respect of the
transaction or series obtains or obtained anything that would
prohibit the disclosure to any person or to the Minister of details
or the structure of the avoidance transaction or series that
includes the avoidance transaction under which a tax benefit could
result. This is in contrast to a situation in which a client of an
advisor benefits from the existence of solicitor-client privilege
in respect of information regarding the avoidance transaction or
series of transactions, and which would not give rise to a
"hallmark" in respect of the avoidance transaction or
series. See the explanatory notes accompanying new subsection
237.3(11) for further details about solicitor-client privilege in
the context of new section 237.3.
It appears that the Department of Finance believes that the
existence of solicitor-client privilege is not "confidential
protection" for the purposes of s. 237.3, though a literal
reading of the definition of "confidential protection"
does not appear to draw this distinction.
Are the Technical Notes on this issue sufficient comfort for tax
advisors? Is this the last statement from the Department of Finance
on the subject? Stay tuned for further developments.
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