On November 6, 2014 at the Toronto Centre Canada Revenue Agency & Tax Professionals Breakfast Seminar, representatives from the CRA provided an update on the Income Tax Rulings Directorate ("Rulings") and discussed current topics of interest.
Income Tax Rulings Directorate Update
Mickey Sarazin, Director General of the CRA's Income Tax Rulings Directorate in Ottawa, presented on recent developments at Rulings.
Mr. Sarazin noted that 10 years ago Rulings received approximately 500 ruling requests whereas today Rulings receives approximately 120 requests each year. As a result, there is an increased effort to engage with not only taxpayers but also the Department of Finance, Department of Justice, internal CRA employees, various accounting and legal professional organizations.
The slides from Mr. Sarazin's presentation are available here.
Folios - In March 2013, 11 folios were published, which took approximately two years to draft and finalize. Ruling has partnered with the Canadian Tax Foundation and CPA Canada to increase the number and timeliness of Folios. Currently, there are 38 additional folios at the draft stage.
National Capacity Building Forums – Rulings is providing taped video sessions or webinars for all CRA employees in order to educate and raise awareness of certain tax issues and subjects. Attendees also include individuals from the Department of Justice and Revenue Quebec.
Pre-Rulings Consultations – This initiative was announced on November 26, 2013 at the Roundtable session at the 65th Annual Tax Conference of the Canadian Tax Foundation held in Toronto, Ontario. The initiative allows taxpayers to meet with Rulings to discuss potential transactions before a formal ruling application is filed. Although only 6-7 requests were received in the first nine months of the program, in the past three months 21 requests were received. Of these 21 requests, 17 have been concluded. In nine of the 17 requests, the CRA responded that a favourable ruling would not be issued.
Technical Capacity/Satellite Offices – Rulings is continuing efforts to hire new staff and reallocate existing staff. Rulings is also establishing satellite offices to attract new employees. For example, Rulings has recently established a presence in the Toronto Centre TSO and the North York TSO. In future years, Rulings expects that it will grow its presence in Toronto, Montreal, Calgary and Vancouver.
Stakeholder Engagement -In conjunction with CPA Canada, Rulings has established a framework for consideration of current issues. Seven committees have been struck under the framework:
- Service Committee (i.e., how to improve services provided to taxpayers);
- Compliance Committee (i.e., how to address early conflicts between auditors and taxpayers before the appeals stage);
- Tax Administration Committee (i.e., dealing with flaws in the legislation);
- SR&ED Committee (i.e., all issues relating to the scientific research and experimental development tax incentives);
- HST/GST/Excise Committee (i.e., all issues relating to these areas of the law)
- Training Committee (i.e., hiring new talent and training auditors)
- Red Tape Committee (i.e., focusing on increasing efficiencies at a national level)
Current Topics of Interest
Vitaliy Anissimov, Industry Sector Specialist, Income Tax Rulings Directorate, discussed several topics that had been addressed in the CRA Roundtable at the recent APFF conference in Montreal (we expect that the full questions/answers will be published by the CRA in the future).
The slides from Mr. Anissimov's presentation are available here. A general summary of some of the issues discussed is as follows:
- In response to the interest deductibility discussion in Swirsky v. The Queen (2013 TCC 73), the CRA noted that as long as there is a reasonable expectation that a corporation will pay dividends then interest can be deducted on loans to acquire common shares of that same corporation (see paragraph 31, of IT-533). Each case will, however, be decided on its own facts.
- The CRA's position on the use of average exchange rates has not changed for the purposes of gains or losses on account of income (see CRA Document No. 2014-0529961M4 " Capital gains on property in foreign currency" (June 10, 2014)).
- The CRA noted that interest paid by a trust on a note issued by it to a beneficiary in settlement of a capital interest of the beneficiary in the trust is not deductible by the trust for the purposes of calculating its income under 20(1)(c)(ii) of the Act because there is no income-earning purpose;
- In response to D&D Livestock v. The Queen (2013 TCC 318), which allowed a taxpayer to take into account twice the amount of safe income in the context of subsection 55(2) of the Act, the CRA noted that it would consider using GAAR in this type of case where there is a duplication of tax attributes by the taxpayer.
- Subsection 98(3) would not apply where a partnership ceases to exist as a result of an acquisition by a single partner of all partnership interest. The requirements of subsection 98(3) would not be met in this type of case.
- The CRA will consider the reasonableness of maintaining surplus accounts in a particular currency on a case by case basis (see also Regulation 5907(6) and section 261 of the Income Tax Act).
For more information, visit our Canadian Tax Litigation blog at www.canadiantaxlitigation.com
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