Mandatory Disclosure of Nominee Agreements to Revenu Québec

Revising its statement of May 17, 2019, Revenu Québec (RQ) announced on August 22, 2019 that the deadline for disclosing nominee agreements that have tax consequences will be the later of (1) the 90th day following the conclusion of the nominee agreement, and (2) the 90th day following the day the bill introducing the new measures receives assent and becomes law. Existing nominee agreements are subject to the same rules as new agreements, provided that the tax consequences related to such agreements were in effect on May 17, 2019; there are no transitional provisions. Draft legislation has not been provided, so it is difficult to understand the scope of the application of this new obligation.

According to section 2130 of the Civil Code of Québec (CCQ), a nominee agreement is an agency agreement or relationship under which an agent acts for and in lieu of another person—the principal—but does not disclose the agency relationship to third parties; rather, the agent gives the appearance of acting in its own name. The parties' true intention and agreement are expressed in a secret contract that remains unknown to third parties.

Nominee agreements are often used in a real estate context. For example, Realco might use a numbered company as the registered owner of land in order to conceal Realco's involvement from the public. Such an agreement could have tax consequences, and thus be subject to the new rules, if any gain or loss on the land or any rental income from the land is attributed to Realco.

Nominee agreements are perfectly legal, as determined by the SCC in Victuni v. Minister of Revenue of Quebec ([1980] 1 SCR 580). The nominee agreement and its effects on third parties are provided for in sections 1451 and 1452 of the CCQ. Section 1452 of the CCQ provides that good-faith third parties may, depending on their interest, rely either on the nominee agreement or on the secret contract. When it comes to the tax authorities, the recent case law, including ZT22 Holding Inc. v. The Queen (2013 TCC 17), draws a distinction between the role of the tax authorities as a "tax assessor" or as a "tax collector." When the tax authorities are seeking to assess tax, they cannot rely on the nominee agreement because they must determine the taxpayer's liability on the basis of the "real situation." However, when they act as tax collectors, they are considered to be good-faith third parties pursuant to section 1452 of the CCQ, and therefore they may either rely on the nominee agreement or the secret contract.

In order to comply with these new mandatory disclosure obligations, the parties to a nominee agreement will have to disclose its existence to RQ by filing a prescribed form. RQ released this form on October 9, 2019, although releasing a form in advance of the associated draft legislation is not normal practice. According to the Quebec Ministry of Finance's Information Bulletin 2019-5, in cases where the nominee agreement is not disclosed by one of the parties within the prescribed time, the parties to a contract may be liable for a minimum penalty of $1,000 and an additional penalty of $100 per day or omission, up to a maximum of $5,000.

Finally, the Quebec Ministry of Finance announced that tax legislation would be amended in order for the normal reassessment period to be suspended for taxation years in which taxpayers did not comply with their nominee agreement disclosure obligations. The ministry did not provide any additional details.

Jonathan Lafrance
Norton Rose Fulbright Canada LLP

Canadian Tax Focus
Volume 9, Number 4, November 2019
©2019, Canadian Tax Foundation