Principal Issues: (1) Does the Income Tax Rulings Directorate (“ITRD”) have a policy regarding the facts to be submitted in an advance income tax ruling request (“Ruling Request”) and, if it does, what is it? (2) Does the ITRD have a policy regarding questioning the facts submitted with a Ruling Request? (3) How does the IRTD resolve disagreements with the taxpayer (or its representative) on the scope and interpretation of documents and sections of the Act? (4) What is the ITRD’s policy on the turnaround time to complete a Ruling Request?
Position: (1) and (2) Yes. (3) and (4) See answers in Reasons below.
Reasons: (1) We expect that the facts submitted with a Ruling Request, as required in Information Circular 70-6R5 under paragraph 16 e), h) and i), are complete and accurate in order to give the rulings and provide the certainty sought by the taxpayer regarding the tax consequences of its proposed transactions.
(2) Our primary concern when a ITRD officer and a taxpayer (or its representative) disagree, for instance, on the interpretation of a document or a provision of the Act, is to issue a ruling letter that will not mislead the reader (whoever that may be) and promote voluntary compliance, uniformity and self-assessment.
(3) In general, the ITRD can resolve a disagreement between a ITRD officer and a taxpayer (or its representative) in many ways, among others, (a) if the ITRD is convinced for instance that a corporation is not a CCPC, it will inform the taxpayer (or its representative) and refuse to rule favorably in regards to provisions of the Act requiring CCPC status to apply (for example, subsection 110.6(2.1)), (b) in cases where the scope of a document is debatable or uncertain, in general, ITRD will give a favorable ruling with a proviso or restriction (for example, a favorable ruling regarding the application of subsection 110.6(2.1) could be given provided the exception under paragraph 110.6(14)(b) applies to a right under paragraph 251(5)(b) that is under a purchase and sale agreement), and (c) the ITRD can also add to the rulings given warnings or comments to inform the reader of the document of ITRD’s position on the tax consequences resulting from the facts, the proposed transactions, the rulings given or a provision of the Act whether or not it is the subject of a ruling.
(4) Since April 1, 2012, the ITRD’s new service standard is to respond to a Ruling Request within 90 controllable business days from its receipt. The controllable business days exclude, among other things, business days the ITRD waits for necessary information from the taxpayer (or its representative) to complete its analysis of the Ruling Request. ITRD targets to meet this new service standard for 85 % of the Ruling Requests it receives.
FEDERAL TAX ROUNDTABLE 5 OCTOBER 2012
2012 APFF CONFERENCE
Question 29
Advance rulings process
The advance rulings process is an important option for a taxpayer wishing to undertake a transaction with uncertain tax consequences.
However, it appears that it is increasingly difficult to obtain a decision in certain transactions, particularly with respect to the facts and assumptions of a proposed transaction. For example, in a request involving a Canadian-controlled private corporation or a non-profit organization, it appears that the CRA is attempting in certain circumstances to call into question the taxpayer's status even though it is not the subject of the request.
Our understanding is that if the taxpayer submits inaccurate facts or interprets the law in a certain way, the CRA is not bound by those facts or that interpretation, except to the extent that it is the subject of the request.
a) Can the CRA explain to us its policy regarding the facts submitted by the taxpayer in support of the taxpayer’s request and the questioning of the facts?
b) Can the CRA tell us about the average time it takes to get an advance ruling, and if it has a policy to that effect?
CRA Response
Response to Question (a)
The procedures and requirements for advance income tax rulings are described in Information Circular IC 70-6R5, Advance Income Tax Rulings and Technical Interpretations (the "Circular").
More specifically, under the heading " Information Requirements for an Advance Income Tax Ruling Request" in the Circular, paragraphs 16 (e), (h) and (i) of the Circular indicate with respect to the facts that must accompany an Advance Income Tax Ruling Request ("Advance Ruling Request"), as follows:
16. Advance income tax ruling requests must include copies of all relevant documents and contain the following (whether or not the taxpayer or the taxpayer's representative has previously received a ruling similar to the ruling requested):
e) a complete description of the facts and a complete description of each proposed transaction;
h) to ensure that the Directorate has a complete understanding of the circumstances, a complete description of significant transactions that were completed by the taxpayer prior to the time of submission of the ruling request or that may be undertaken after the completion of the proposed transactions, which may be part of the series of transactions;
i) a summary of relevant facts contained in any supporting agreements or documents;
The CRA expects that the facts described in an Advance Ruling Request are complete and accurate. It seems essential to us that the facts are complete and accurate in order that the CRA can ensure that it can give the rulings and provide the certainty sought by the taxpayer regarding the tax consequences of its proposed transactions.
Essentially, as stated in paragraph 10 of the Circular, when there is a material omission or misrepresentation in the statement of relevant facts or proposed transactions in the context of an Advance Ruling Request, the advance income tax ruling will be considered invalid and the CRA will not be bound by it.
Furthermore, in the process of analyzing an Advance Ruling Request, there are times that a taxpayer (or the taxpayer’s representatives) and staff of the CRA Income Tax Rulings Directorate ("ITRD") do not agree on the scope of certain documents, for example, for the purposes of determining the CCPC status of a particular corporation. That does not in itself constitute a new difficulty or a more common situation than in the past.
In similar cases, our primary concern is to issue a ruling letter that will not mislead the reader (whoever that may be). Indeed, as stated in paragraph 3 of the Circular, “The purpose of the advance income tax ruling service is to promote voluntary compliance, uniformity and self-assessment by providing certainty with respect to the income tax implications of proposed transactions.”
Therefore, in the course of considering an Advance Ruling Request, we want the process to be as transparent as possible, with each of the parties sharing their concerns and their interpretation of the scope of the documents and the various provisions of the Act, without concealment or reticence [“laissez-faire”].
In general, a disagreement can be resolved in practice, in a variety of ways, including:
(a) if the ITRD is satisfied for example that a corporation is not a CCPC on the basis of the submitted documents, it will inform the taxpayer (or its representative) and refuse to rule favourably in regards to provisions of the Act requiring CCPC status to apply (for example, the capital gains deduction in subsection 110.6(2.1) resulting from the disposition of “qualified small business corporation shares”.
(b) in cases where the scope of a document is debatable or uncertain, in general, ITRD will give a favorable advance ruling with a proviso or restriction. For example, a favorable ruling regarding the application of the capital gains deduction by virtue of subsection 110.6(2.1) could be given provided the exception under paragraph 110.6(14)(b) applies to a right under paragraph 251(5)(b) that is provided under a purchase and sale agreement.
(c) the ITRD can also add to the rulings given warnings or comments to inform the reader of the document of ITRD’s position with respect to, inter alia, the tax consequences resulting from the facts, the proposed transactions, the rulings given or a provision of the Act whether or not it is the subject of a ruling.
Response to Question (b)
Since April 1, 2012, the ITRD’s standard is to respond to a Ruling Request within 90 business days, attributable to the ITRD, from its receipt. The attributed business days exclude, among other things, business days during which the ITRD waits for necessary information from the taxpayer (or its representative) to complete its analysis of the Ruling Request.
We expect to meet that new service standard for 85% of the files handled.
Marc LeBlond
(613) 957-2108
2012-045419