A financial advisor (Ms. A), at the request of Mr. B’s tax advisor, sells a generally-available financial product to Mr. B and receives compensation directly from the issuer of the product based on the amount invested by Mr. B.
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 the purchase of the financial product was part of a series of transactions that included an avoidance transaction, such that such purchase (being part of the series) was a reportable transaction. Did Ms. A nonetheless have no reporting obligation under the current version of 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 went on to indicate factors that it would take into account in determining whether Ms. A has an obligation to file an information return under s. 237.3(2)(c) or (d), including who was entitled to a fee referred to in para, (c) of “reportable transaction” in s. 237.3(1).
Regarding whether a fee is described in para. (a) of the definition “reportable transaction” in subsection 237.3(1), CRA indicated that it would consider the following statements from the Explanatory Notes:
- “a fee based solely on the value of the services provided in respect of a transaction or series, determined without reference to the tax results of the transaction or series, would not be a fee described in subparagraph (a)(i)”.
- “Subparagraph (a)(ii) of the definition would not apply if no portion of the fee to which the advisor or promoter is entitled is dependent on the taxpayer obtaining any tax benefit, nor would it apply merely because the fee to which an advisor or promoter is entitled depends on whether a transaction or series is completed provided that the fee is not dependent on any tax benefit from the transaction or series”.
- “Similar transactions or series include transactions or series having the same or similar structure and entered into by different taxpayers, when the objective of those transactions or series is to result in similar tax benefits for each of those taxpayers, even if those transactions or series may involve different properties or obligations”.