Ms. A, who is licensed to sell investment and insurance products, assists Mr. B, at the request of his tax advisor in purchasing one of such financial products (generally available in the market and bearing normal commercial terms) and receives compensation directly from the financial services company who developed this product that is directly linked to the amount invested.
Subsequently, the tax advisor, without Ms. A’s knowledge, combines the financial product with certain other tax strategies where the existence and amount invested by Mr. B is used to obtain a tax benefit. Mr. B is reassessed on the basis that there has been a series of transactions (which includes the purchase of the financial product) that includes an avoidance transaction, that each transaction in the series is a reportable transaction, and that no reporting was made to CRA by Mr. B or his tax advisor.
If the purchase of the financial product is part of a series of transactions that includes an avoidance transaction such that each transaction included transaction including the purchase of the financial product is a reportable transaction, did Ms. A nonetheless have no reporting obligation under s. 237.3(2)?
CRA indicated that “[b]ased on the limited facts provided” it could not confirm that Ms. A had no such reporting obligation and that, in determining whether Ms. A has an obligation to file an information return under s. 237.3(2)(c) or (d), it would consider factors such as:
- whether Ms. A is an advisor or a promoter in respect of the sale of the financial product (notably whether she acted in a manner described in the definition of “advisor” or “promoter” in s. 237.3(1) in respect of the sale of the financial product);
- the terms of the sale of the financial product and the series of transactions, of the financial product, and of the consideration received by Ms. A from the financial services corporation;
- whether Ms. A is dealing at arm’s length with an advisor or promoter in respect of any transactions in the series; and
- who was entitled to a fee referred to in para, (c) of “reportable transaction” in s. 237.3(1).