Are Pre-Closing Tax Indemnities Reportable Transactions?

The updated mandatory disclosure rules in the Income Tax Act (Canada) (the "ITA") were enacted in June 2023. In general, they are made up of the reporting requirements pertaining to reportable transactions, notifiable transactions, and uncertain tax treatments. Despite Canada Revenue Agency ("CRA") guidance issued in July 2023 and updated in August 2024, some key questions remain – especially in the M&A context.

In this article, we consider whether an indemnity relating to a pre-closing tax issue is a contractual protection "hallmark" under the rules, potentially triggering a reporting obligation.

For previous articles written on the mandatory disclosure rules, see Reportable uncertain tax treatment rules, New reportable transaction rules receive Royal Assent, Trust planning and the notifiable transaction rules: Where do we go from here?, and Canada Revenue Agency updates its guidance on mandatory disclosure rules.