{"id":6505,"date":"2023-10-12T16:49:39","date_gmt":"2023-10-12T20:49:39","guid":{"rendered":"https:\/\/www.millerthomson.com\/reportable-uncertain-tax-treatment-rules\/"},"modified":"2025-09-11T13:23:15","modified_gmt":"2025-09-11T17:23:15","slug":"reportable-uncertain-tax-treatment-rules","status":"publish","type":"post","link":"https:\/\/www.millerthomson.com\/en\/insights\/corporate-tax\/reportable-uncertain-tax-treatment-rules\/","title":{"rendered":"Reportable uncertain tax treatment rules"},"content":{"rendered":"\n

The mandatory disclosure rules contained in Bill C-47 are now in effect. While there has been a great deal of discussion regarding the reportable and notifiable transaction rules, Bill C-47 also introduced new reporting obligations in respect of \u201creportable uncertain tax treatments\u201d (\u201cRUTTs<\/strong>\u201d) as set out in section 237.5 of the Income Tax Act <\/em>(Canada) (the \u201cAct<\/strong>\u201d).<\/p>\n\n\n\n

Very generally, section 237.5 requires that certain corporations report uncertain tax treatments to the Canada Revenue Agency (the \u201cCRA<\/strong>\u201d) in the course of filing their annual corporate income tax returns. This reporting obligation applies to taxation years that begin after 2022. In this article, we discuss the implications of these new rules on larger corporations and the consequences of non-compliance.<\/p>\n\n\n\n

Definition of a \u201creporting corporation\u201d<\/h2>\n\n\n\n

The reporting obligation contained in section 237.5 only applies to a \u201creporting corporation\u201d, which is defined in subsection 237.5(1) as a corporation that meets all<\/strong> of the following requirements:<\/p>\n\n\n\n

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  1. the corporation has \u201crelevant financial statements\u201d for the taxation year;<\/li>\n\n\n\n
  2. the \u201ccarrying value\u201d of the corporation\u2019s assets is greater than or equal to $50 million at the end of the taxation year; and,<\/li>\n\n\n\n
  3. the corporation is required to file a Canadian income tax return for the taxation year.<\/li>\n<\/ol>\n\n\n\n

    With respect to the first requirement, \u201crelevant financial statements\u201d are defined in subsection 237.5(1) as audited financial statements that are prepared:<\/p>\n\n\n\n

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    1. in respect of the corporation, or in respect of a consolidated group of which the corporation is a member which is required to prepare consolidated financial statements for financial reporting purposes under applicable accounting principles;<\/li>\n\n\n\n
    2. in accordance with International Financial Reporting Standards (IFRS) or other country-specific generally acceptable accounting principles (e.g., U.S. GAAP) relevant for corporations that are listed on a stock exchange outside Canada; and,<\/li>\n\n\n\n
    3. for a period of time that ends in the taxation year.<\/li>\n<\/ol>\n\n\n\n

      With respect to the second requirement, subsection 237.5(9) provides that whether a corporation satisfies the $50 million asset threshold is to be determined by reference to subsection 181(3) of the Act, which provides that for the purposes of determining the \u201ccarrying value\u201d of a corporation\u2019s assets: (a) the equity and consolidation methods of accounting shall not be used; and (b) the amounts reflected in the balance sheet presented to the shareholders of the corporation shall be used. Accordingly, the determination of whether a corporation meets the $50 million asset threshold is based on the corporation\u2019s unconsolidated balance sheet.<\/p>\n\n\n\n

      The third requirement is that the corporation is required to file a Canadian income tax return. This requirement will be met if the corporation is resident in Canada, or is non-resident corporation with a taxable presence in Canada (e.g., it carries on business in Canada or disposes of taxable Canadian property).<\/p>\n\n\n\n

      Meaning of Reportable Uncertain Tax Treatments<\/h2>\n\n\n\n

      A RUTT is defined in subsection 237.5(1), and includes a tax treatment in respect of a transaction or series of transactions the corporation uses or plans to use in income tax filings over which there is any uncertainty about whether that tax treatment will be accepted as being in accordance with the relevant tax law, and which is reflected in the relevant financial statements of the corporation for the year (e.g., for financial statements prepared in accordance with U.S. GAAP, where a reserve with respect to a tax position has been recorded in the financial statements).<\/p>\n\n\n\n

      For clarity, the disclosure obligation respecting RUTTs only applies to tax treatments which relate to the Act; corporations are not required to make disclosures pertaining to uncertain tax treatments beyond the scope of the Act (e.g., provincial tax, GST\/HST, and non-Canadian taxes).<\/p>\n\n\n\n

      The CRA has indicated that reporting corporations must disclose RUTTs that relate to their partnership interests, if any.<\/p>\n\n\n\n

      Timing for Reporting and Prescribed Form<\/h2>\n\n\n\n

      Subsection 237.5(3) provides that the information return required to be filed under subsection 237.5(2) must be filed on or before the corporation\u2019s filing due date for the relevant taxation year.<\/p>\n\n\n\n

      The prescribed form for reporting uncertain tax treatments is the RC3133, Reportable Uncertain Tax Treatments Information Return<\/em><\/a>. Form RC3133 requires, among other things, the following information from a reporting corporation:<\/p>\n\n\n\n