Are wealth advisors ready for new mandatory disclosure rules?

Enhanced tax-related reporting requirements will apply to certain transactions by trusts, individuals, corporations, and partnerships

Are wealth advisors ready for new mandatory disclosure rules?

This article was contributed by KPMG in Canada.

Increasingly, tax authorities in many countries are requiring organizations and taxpayers entering into transactions to disclose more detailed information about the tax benefits associated with these arrangements.

Known as mandatory disclosure rules (MDRs), the enhanced reporting requirements reflect a wider trend toward greater tax transparency and information-sharing about certain types of transactions, both domestically and across borders. Enhanced reporting requirements also provide tax authorities in different jurisdictions with more intelligence to assist with tax compliance.


Following a Declaration by the G7 in 2017, the OECD (Organization for Economic Cooperation and Development) introduced a framework for mandatory disclosure rules for its member countries. The changes are intended to “prevent avoidance of the Common Reporting Standards (CRS)” and structures that disguise the “beneficial ownership of assets and income held offshore.”

Canada adopts enhanced MDRs

Canada announced its intention to adopt mandatory disclosure rules in the 2021 federal budget and released updated draft legislation in August of this year.  The legislation expands reporting requirements for corporations and individuals, enhancing the disclosure of information about transactions that have a tax basis to the Canada Revenue Agency (CRA). The Finance department amended the original timing for these rules to come into effect to January 1, 2023 rather than in 2022.

Generally, the legislation lowers the threshold for disclosing “reportable transactions” and introduces new requirements for taxpayers to advise the CRA of “notifiable transactions” and “uncertain tax treatments”. In most cases, reports to the CRA will be required within 45 days of entering into the transaction.

The new rules affect corporations, individuals, trusts and partnerships for transactions that have specific attributes. Advisors who worked on the transaction will also have reporting requirements.

“The new MDR rules are about providing tax authorities with more detailed information to allow them to examine higher-risk transactions and decide if a review is needed to assess overall tax compliance,” says Barry Travers, Partner, Tax Special Projects, KPMG in Canada.

Specifically, the changes include:

·       A lower threshold for reportable transactions involving contractual protections where it can be reasonably concluded that one of the main purposes of the transaction is to gain a tax benefit.

·       New reporting requirements for a new category of “notifiable transactions” that the CRA has identified to be of interest or potentially abusive.

·       New reporting requirements on “uncertain tax positions” in Canadian income tax filings of corporations having at least $50 million in assets. Disclosure will be required at the same time that the corporation’s income tax return is due.

·       Expanded reporting for advisors who offer these arrangements and charge a fee.

According to Travers, the expanded MDR rules are complex and require detailed analysis to determine if a transaction meets the new definitions and thresholds.  With that in mind, KPMG in Canada uses a digital MDR tool that was originally developed by the German firm to analyse transactions and rules in 75 countries.

“It’s important to stay ahead of these legislative changes which, upon receiving Royal Assent, are expected to come into effect in the new year,” says Travers. “The penalties for failing to comply with the new rules can be quite steep, so identifying and properly reporting on transactions in a timely way is critical.”