Advance Income Tax Rulings and Technical Interpretations
Taxpayers may request answers from Canada Revenue Agency (“CRA”) by requesting an advance income tax ruling, or a technical interpretation.
A technical interpretation is designed to be simplistic and rather generic. The CRA will provide a written statement that illustrates their position/interpretation of a certain section of Canadian income tax law (there is no fee associated with requesting one). The response from the CRA will also be straightforward and generic.
A ruling, while similar, differs slightly as it is a written statement from the CRA, stating how the Canadian income tax law will apply to a specific transaction(s) contemplated by a Taxpayer (these are usually requested by tax lawyers, etc. on behalf of their clients). There is a fee associated with filing a request for a ruling.
Technical interpretations explain how the CRA will likely interpret a specific provision of income tax law. However, it is not usually fact specific and will not be determinative of the tax treatment of your specific situation.
There are some situations in which the CRA will not issue a technical interpretation. Some examples are:
- Transactions in respect of which a provision can only result in one outcome and there is no reasonable alternative interpretation;
- Where an inquiry relates to an interpretation already contained in a CRA publication such as a guide or folio; and
- Where the Technical Interpretation request relates to a matter that is under audit, under objection or the subject of a current or completed court process.
If you are going to request a technical interpretation, you must include in your request your name, address, and telephone number of the requestor; a brief description of the tax issue/reason for the request; and if the requestor is a tax professional or corporation, you must include a detailed analysis of the issue in the request.
A request for an interpretation, will generally be acknowledged within two weeks of receipt (due to COVID-19 this time will likely be increased). The CRA will generally respond within 90 business days, but this time is also likely to be increased due to COVID-19 backlogs at the CRA.
The CRA tends to provide rulings to promote and ensure voluntary compliance from taxpayers, by providing some form of certainty with respect to how the Income Tax Act will be applied to certain transactions.
Rulings are rarely issued on transactions that are already completed, seeing as there is nothing for the CRA to rule on once a transaction has been finalized.
Subject to any comments or disclaimers provided in a ruling, a ruling is binding upon the CRA so far as it relates to the specific taxpayer and situation described in it. If there are any material omissions in the original request, the ruling is likely to be found non-binding.
The CRA can also revoke a ruling, where it is determined it was issued in error, or where the CRA changes its interpretation on the related law. If a ruling is revoked, the CRA must provide written notice to the taxpayer as far in advance as possible.
There are some scenarios where the CRA will not issues rulings. Some examples are:
- Proposed transactions that are not being seriously contemplated or are to be completed at some indefinite future time;
- The determination of the fair market value of a property; and
- Proposed transactions in respect of which a provision can only result in one outcome and there is no reasonable alternative interpretation.
If you are requesting a ruling, you must ensure your request it far enough in advance that the CRA has sufficient time to review the request and respond, prior to the contemplated transaction closing, etc.
This type of conference allows for taxpayers or their representatives (or both) to discuss with the CRA the specifics of their situation in advance of them potentially submitting a full ruling request (a fee is charged for these conferences).
The main benefit of a pre-ruling conference is to potentially reduce the cost a taxpayer may incur by preparing a more detailed ruling request.
At the closing of the conference, the CRA will inform the individual whether they believe a formal ruling request is required. A request for further submission is not indicative one way or another of the CRA’s views of the merits of your request.
Publication of Rulings and Interpretations
While both rulings and interpretations are published, taxpayers must be aware when relying on previously published ones for a few reasons.
Firstly, these documents illustrate the viewpoint of the CRA at the time of the ruling. They do not reflect any changes in the law, meaning they may no longer be valid when you are reviewing them.
Secondly, due to the requirement to redact taxpayer sensitive information, the ruling or interpretation may be missing key details for you to determine if you can rely on it.
Lastly and arguably most importantly, each fact scenario is different and there is no guarantee even with similar facts, that the CRA will rule the same for your situation, as they did for someone else.
Overall, tax rulings and technical interpretations can be time consuming, but if executed correctly, can help you avoid unwanted tax consequences. If you have any questions or need any assistance regarding the preparation and submission of an advance tax ruling, technical interpretation, or any tax matter, please feel free to contact us today!
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.