Principal Issues: 1) Is the CRA of the view that, absent provisions explicitly giving a discretionary power, it has no discretion in the application of the Act?
2) According to the CRA, what is the value of technical interpretations and advance tax rulings in this context?
Position: 1) When the CRA issues an assessment to a taxpayer, it must do so in accordance with the facts and the law. The CRA is bound to apply Parliament’s direction in the Act, as interpreted by a court of law, unless and until that interpretation is judged to be incorrect by a higher court.
2) The CRA provides interpretations to internal and external stakeholders. A technical interpretation is a written statement that provides the CRA’s interpretation of specific provisions of Canadian income tax law at the time it is issued. An advance tax ruling is a written statement confirming the interpretation of the CRA on the application of specific provisions of Canadian income tax law at the time it is issued. Subject to any qualification, caveats, disclaimers or comments stated in a Ruling, a Ruling is regarded as binding upon the CRA with respect to the recipient taxpayer and the described transactions.
Reasons: Canada (Attorney General) v. Collins Family Trust, 2022 SCC 26.
FEDERAL TAX ROUNDTABLE, NOVEMBER 2, 2023
APFF CONFERENCE 2023
15. CRA's position - Collins decision
In its decision in Canada (Attorney General) v. Collins Family Trust (footnote 1), the Supreme Court of Canada seemed to indicate that the tax authorities have no discretion regarding their application of the Act:
[25] Nor does Pitt v. Holt’s conclusion on this point account for our law that, in this case, required the Minister of National Revenue to apply the Act to the transactions. By s. 220(1) of the Act, Parliament has imposed upon the Minister a duty (“[t]he Minister shall”) to “administer and enforce” the Act. No discretion is afforded the Minister or the Minister’s agents: “They are required to follow [the Act] absolutely, just as taxpayers are also required to obey it as it stands” (Harris v. Canada (C.A.), [2000] 4 F.C. 37 (C.A.), at para. 36, citing Ludmer v. Canada, [1995] 2 F.C. 3 (C.A.); see also Longley v. Minister of National Revenue (1992), 66 B.C.L.R. (2d) 238 (C.A.), at para. 19). Quite apart from undermining Parliament’s direction, inconsistent exercises of discretion by the Minister or the Minister’s agents create inequity among taxpayers (S. Templeton, “A Defence of the Principled Approach to Tax Settlements” (2015), 38 Dal. L.J. 29, at p. 32). In a self‑assessing tax system such as that provided for in the Act, taxpayers should have confidence that the Minister is administering and enforcing the same tax laws in the same way for everyone (pp. 33-34 and 68).
[26] Practically, this constrains the Minister to assess a taxpayer in accordance with the facts of the matter ⸺ here, the transactions ⸺ and the law (CIBC World Markets Inc. v. Minister of National Revenue, 2012 FCA 3, 426 N.R. 182, at paras. 16 and 20‑21, per Stratas J.A.; Galway v. Minister of National Revenue, [1974] 1 F.C. 600 (C.A.), at p. 602; Canada v. 984274 Alberta Inc., 2020 FCA 125, [2020] 4 F.C.R. 384, at para. 52). This goes to the respondents’ submission and my colleague’s conclusion that what brought this case into a “zone of unfairness” was the CRA changing its interpretation of the provisions and reassessing the respondents retroactively in light of the Tax Court’s decision in Sommerer (transcript, at p. 59; see also Re Pallen Trust, paras. 9 and 56; C.A. reasons, at para. 30; Côté J.’s reasons, at para. 80). My colleague impugns this as a “discretionary” measure on the CRA’s part, and finds “unfairness” in its decision to reassess the respondents in light of the Tax Court’s decision while simultaneously arguing at the Federal Court of Appeal that it was incorrectly decided. But, and respectfully said, this ignores that the Minister was bound to apply Parliament’s direction in the Act, as interpreted by a court of law, unless and until that interpretation is judged to be incorrect by a higher court. Unless a statute gives the Minister the power to deviate from that direction, the Minister may not deviate; nor may a court undermine that direction by resort to equity, since there is nothing unconscionable or unfair about the Minister administering the Act as Parliament directs. Equity is the conscience of the common law, not of Parliament.
Questions to the CRA
(a) Do the tax authorities consider that, with the exception of provision explicitly conferring discretion , they have no discretion regarding the application of tax law?
(b In this context, what is the worth of technical interpretations and advance rulings in the view of the tax authorities?
CRA Response to question 15(a)
In Collins, the Supreme Court of Canada recognized that the Minister and the Minister’s agents "are required to follow [the Act] absolutely, just as taxpayers are also required to obey it as it stands". It follows that where the CRA assesses a taxpayer, it is required to do so in accordance with the facts and the law. In this context, we agree with the conclusions of the Supreme Court of Canada that, when it makes an assessment, the CRA is bound to apply the directive set out by Parliament in the Income Tax Act, as interpreted by a court of law, provided that interpretation has not been found to be incorrect by a higher court.
CRA Response to question 15(b)
As part of its functions, the CRA administers tax, benefit, and related programs, and provides tax compliance for taxpayers.
The Income Tax Rulings Directorate (the "Directorate") serves as the centre of expertise in income tax interpretation for the CRA as a whole. The Directorate's role is to interpret Canadian income tax legislation (the "Legislation") and explain how it applies to different situations. The Directorate provides its interpretations to internal and external stakeholders through various products, including technical interpretations, advance income tax rulings, and income tax folios, in order to facilitate and promote taxpayer compliance.
A technical interpretation is general in nature and is a written statement that sets out the CRA's interpretation of specific provisions of the Legislation in force at the time of its publication. This service is intended to assist taxpayers in determining for themselves the tax treatment of a particular situation.
An advance ruling is a written statement that confirms how the CRA's interpretation of the application of specific provisions of the Legislation applies to contemplated transactions. The purpose of this service is to provide certainty with respect to the consequences of the application of the Legislation to proposed transactions. An advance income tax ruling, subject to any conditions, restrictions, waivers or representations contained therein, is considered binding on the CRA with respect to the taxpayer and the transactions contemplated thereby.
Simon Morin
November 2, 2023
2023-098290
FOOTNOTES
Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:
1 2022 SCC 26 ("Collins").