20 November 2017 CTF Conference - "Advance Tax Rulings - 2017 and Beyond"

The following is a summary of oral remarks made by the following Canada Revenue Agency representatives:

Costa Dimitrakopoulos, Director General of the Income Rulings Directorate, and

Lori Carruthers, Manager, International Division, Income Tax Rulings Directorate

Their summarized remarks were given on the afternoon of November 20, 2017 in the Panel on Advance Tax Rulings in the course of the Canadian Tax Foundation’s 69th Annual Tax Conference held in Toronto on November 19 to 21, 2017. Also on the Panel were Doug Cannon (McCarthy) and Mitchell Sherman (Goodmans), whose remarks have not been summarized. The Panel was moderated by Heather Evans (CTF).

Overview of ATR Process

Costa Dimitrakopoulos: I will start with a brief overview of the ATR service.

An Advance Income Tax Ruling is a written statement confirming how the CRA’s interpretation of specific provisions of Canadian income tax law applies to a definite proposed transaction or transactions that a taxpayer is contemplating. ATRs are generally requested by tax professionals on behalf of their clients, and subject to the many qualifications, caveats, disclaimers or comments stated in an ATR, it is binding on the CRA with respect to the recipient taxpayer and on the proposed transactions to the extent that there is no material omission or misrepresentation in the statement of relevant facts, proposed transactions, or other information described in the ATR, and to the extent that the proposed transactions are implemented within the time limit specified in the ATR.

An Advance Tax Ruling is more than a Technical Interpretation, which is a generic non-binding statement of how the CRA interprets particular aspects of the income tax law. In a Technical Interpretation, we are given a hypothetical scenario, for which we indicate how we would interpret the income tax law. Because a hypothetical situation does not identify a specific taxpayer, a Technical Interpretation is not binding on the CRA. In the case of an Advance Tax Ruling, we are given specific facts and circumstances and we make specific binding statements of the application of the income tax law to the specified contemplated transactions for the specified taxpayer.

Many people use the term ruling in relation to any document provided by CRA’s Income Tax Rulings Directorate. This can be misleading given that the significant difference between an advance income tax ruling and a technical interpretation. It is for this reason that we are being careful to use the expression Advance Tax Ruling or ATR. In terms of the purpose of the ATR service, it is to promote voluntary compliance and conformity in self-assessment by providing certainty with respect to the application of Canadian income tax law to proposed transactions.

The ATR service is an administrative service only. It is not governed by statute and the CRA is not compelled to provide an Advance Tax Ruling in any particular case. In addition, a taxpayer is not required to apply for an ATR in any particular circumstance.

Origins and Scope of ATR Service


Costa Dimitrakopoulos: I will now provide a brief history of the ATR service and also comment briefly on what the Income Tax Rulings Directorate does in general.

The ATR service was created in response to a recommendation made by the Royal Commission on Taxation, also known as the Carter Commission, which issued its final report in 1967. The Commission opined that advance rulings are an excellent device for fostering and encouraging the self-assessment system, and would contribute to good relations between the income tax administration and the tax-paying public. The ATR service was instituted on December 4th, 1970, with the publication of Information Circular IC70-6.

5 Divisions

The Income Tax Rulings Directorate is now made up of five distinct Divisions, four of which perform our traditional ATR service. These are:

  • the Reorganizations Division that deals with corporate reorganizations, resource industries, corporate finance and partnerships;
  • the Business and Employment Division which deals with business and employment income, tax credits and Ministerial issues, non-profit organizations and aboriginal issues and business income and capital transactions;
  • the International Division that deals with international tax and administrative tax law matters; and
  • the Financial Industries and Trusts Division which deals with financial institutions, trusts, and deferred income plans.
  • Our fifth Division is responsible for dedicated telephone services, income tax Folios, national technical capacity building forums and internal workings of the Rulings Directorate.

Other services of the Directorate

The Rulings Directorate is CRA’s centre of technical expertise on income tax matters. It is responsible for formulating and publishing the CRA’s official interpretations of the provisions of the Income Tax Act, the Income Tax Regulations, income tax Treaties and all related statutes and agreements. As such, the Rulings Directorate performs the following functions in addition to the issuing of Advance Tax Rulings:

  • it issues Technical Interpretations to taxpayers and tax professionals;
  • it provides Technical Interpretations and advice to other units of the CRA such as our compliance branches as well as to the Departments of Finance and other government organizations such as the Department of Justice;
  • it issues Income Tax Folios, and reviews CRA’s income tax forms and guides and other publications;
  • it leads the GAAR committee and participates in other government tax committees such as the Adverse Decision Committee;
  • it supports the Minister of National Revenue and the Commissioner by addressing to requests to respond to taxpayers’ queries and preparing question period responses or providing assistance at or for parliamentary hearings or reports;
  • it supports the Department of Finance in drafting proposed legislation and supports the Department of Justice with case preparation; and
  • it coordinates and presents Income Tax National Capacity Building Forums, which serve as a knowledge-sharing opportunity for CRA auditors and other CRA staff.

Volume and Standards

Effect of volume on Services Standard

Over the last five years, we have been experiencing a steady decline in Advance Tax Rulings except for an unexpected upswing in 2015-2016. In 2012-2013, we had about 175 Advance Tax Rulings, and our latest figure for 2016-2017 is about 129.

We have a service standard of completing 85% of Advance Tax Rulings files within 90 business days and, although we met our service standard in 2015-16 (at 87%), we were short this last year (at 78%). In fact, 2015-16 was likely an anomaly. In that year there was a similar issue for a large number of files, so that the work done on one file could be applied to many files. This is now rarely the case, as taxpayers and their representatives have greater access to our rulings, and we try to focus on precedent-setting rulings, and avoid ruling on issues that we have previously ruled on.

85%/90 day Service Standard

Lori Caruthers: As you are aware, a fee is charged for the ATR service. The hourly fee is based on a cost-recovery estimate and it is currently set at $100 per hour for each of the first ten hours, and $155 an hour for each hour after that.

Pursuant to the federal Service Fees Act, no fee can be charged without an accompanying performance or service standard in respect of the fee. Service standards are the government’s public commitment to a measurable level of performance that the clients can expect under normal circumstances. They help clarify service expectations, and help ensure accountability for service performance. For our service standard, our goal is to resolve an ATR request within 90 business days of receipt of all essential information from the client. Thus, our target is to make this service standard 85% of the time.

The target is less than 100% to account for such matters as abnormal circumstances and abnormally complex requests. For example, some requests for ATRs are of such a highly complex policy nature that they require us to collaborate with other areas of the CRA, or even with the Departments of Justice or Finance. This kind of collaboration takes planning, and is subject to the availability of personnel from other areas of government. As such, a request of this nature generally takes more than 90 business days.

Our service standard is to complete within 90 business days of receipt of all essential information from the client. Often requests that we receive are missing some essential information. When we identify this, we phone the client and we request that information. The time that it takes the client to provide us with the missing information is not time counted towards the 90 business days of our service standard. Although uncounted, the time still has an impact on our ability to meet our service standard. The more iterative is the process of identifying missing information, requesting that information, waiting for the information and then getting back into the file to identify further missing information etc., the more inefficient the process is. This results in more overall time taken to resolve the file.

Effect of competing demands on Services Standard

Costa Dimitrakopoulos: Thinking about competing demands, one of the challenges that our Directorate faces (and probably all of CRA and other organizations) is competing demands on our resources. As noted earlier, our Directorate offers many services in addition to the traditional Advance Tax Ruling service. Our work load has evolved over time with more requests from the Commissioner’s and Minister’s offices, media inquiries as well as new workloads such as Folios and national tax technical capacity building forums, which was not being done a few years ago. All of this work is done by the same officers that are working on Advance Tax Rulings.

Many of our other services have competing priority with Advance Tax Rulings. Examples are our assistance to auditors on files coming up on statute barred dates, Ministerial aid in providing question period responses and argument and assistance during parliamentary hearings, media inquiries, requests for comment and recommendation on whether to appeal an adverse decision, requests from Finance Canada for comments and input on draft legislation during drafting sessions, and requests under the Access to Information program. These are all time-sensitive requests to us. There are also Roundtables and Technical Interpretations.

Lori Caruthers: Another one of our challenges is that tax legislation continues to increase in complexity. This results in ever more difficult issues being present in ATR requests, therefore taking longer to resolve.

We have absolutely no complaints over the complexity of the issues presented in the ATR requests we receive - arguably, one of the purposes of the ATR service is to specifically address emerging interpretive issues in new legislation.

Nevertheless, the technical complexity of our work is a challenge. Perhaps this challenge is amplified by the employee turnover our Directorate has been facing recently. Although I did not bring specific numbers with me, given the current retirements of baby-boomers, and the fact that those of us in Generation X and our youthful colleagues in Generation Y are generally described as moving around more over their careers than their predecessors. I think it is fair to say that there is more turnover now than there was 15 years ago. When I joined the Directorate in 2007, there had not been an external hiring process in over five years, whereas now we seem to have one annually. New employees require training and training takes resources, and those are the same people resources who work on our more complex ATRs.

Standing committee on Finance Report

Committee request for review of ATR process

Costa Dimitrakopoulos: The 2016 Standing Committee on Finance Report made several recommendations. I will focus on the first recommendation, which was for a review of the ATR process.

On 14 April 2016, the House of Commons Standing Committee on Finance adopted the motion that the Minister of National Revenue and certain officials from the CRA and from the Department of Justice appear before the Committee to provide the steps being taken by the Agency to combat tax-evasion and tax-avoidance, and provide an explanation as to the current status of the KPMG/Isle of Man file. The Finance Committee issued its sixth report in October 2016, which was entitled the "Canada Revenue Agency: Tax Avoidance and Tax Evasion," in which it made 14 recommendations with respect to the Minister of National Revenue, the CRA, and the federal government as a whole.

One of the committee’s recommendations was for the Minister of National Revenue to conduct a comprehensive review of the Advance Tax Ruling service with a view to identifying ways in which efficiency and timeliness could be improved, costs could be reduced, and effectiveness could be increased.

During the review, completed by 31 March 2017, relevant external stakeholders were contacted to obtain feedback on the timeliness and effectiveness of the process, and to identify possible improvements. The review also considered the effectiveness of the pre-rulings consultation service, which has been in place since 2013. The review involved researching historical external commentary in respect of Advance Tax Rulings service and analysis of the tax rulings regimes of certain other countries, notably the U.K. and the U.S., external consultations with national tax organizations including the Canadian Tax Foundation, and consultations with senior officers of the Rulings Directorate itself.

Comparison with other countries

Lori Caruthers: With respect to the historical commentary, our research suggests that users of the ATR service have tended to regard the service as very valuable and generally functioning well. The main recurring criticism appears to be the lack of timeliness. Only on very rare occasions has there been criticism of our fees, and this was usually in relation to smaller businesses.

Regarding our review of ATR regimes in other countries, we found that some countries have statutory ATR regimes, with rights of appeal - but that seems to be the exception and not the rule. Most countries we considered have a system, similar to ours, that is discretionary and administrative. Other observations we made were that some countries give rulings on completed transactions, but usually with the requirement that the relevant tax return had not yet been filed. Some countries will not rule on the application of their anti-avoidance rules. Some countries have lists of specific types of transactions on which they will not entertain ATR requests, with the U.S. being an extreme example of this. Some countries have a different fee structure for small and for large taxpayers.

I would like to close this segment by noting that the fact that some countries will not give ATRs on their anti-avoidance rules was a particularly significant discovery, and it became a significant topic of discussion during both our external and internal consultations.

Feedback to the Directorate and Response

On the ATR process generally

Lori Caruthers: The feedback that we received from outside the Canadian Tax Foundation is consistent with what we have received historically, and what we received from the CTF. The biggest recurring complaint is on timeliness. As will be discussed, we are working on that. We also heard about a perceived lack of engagement of the Rulings Directorate staff. This comment had two components: the lack of availability of highly experienced staff to discuss ATR files; and the lack of communication with taxpayers as to the status of their files. We also heard through our external consultations that the tax community is interested in the ATR service addressing questions of fact and completed transactions.

We specifically asked questions about our pre-rulings consultation process and (as alluded to earlier) about ATR requests respecting anti-avoidance rules.

Costa Dimitrakopoulos: We are trying to become a much more service-oriented organization, and we see this as an ongoing dialogue. We see the ATR process as an evergreen improving process so that we can satisfy our tax community taking into account the situation of constraints that we find ourselves in. So we view you as allies and as partners in trying to improve the advance tax rulings process. We appreciate your suggestions, and we will take them into account as we continue looking at this process.

Pre-rulings consultations

The pre-rulings consultation process was introduced in 2013, and it was intended to allow taxpayers to discuss with the Rulings Directorate any unique new technical issues that were critical to the structuring of transactions that they were contemplating, with a view to reducing costs that they might otherwise incur in the preparation of the more detailed submission that are required in a formal ATR request. Its goal was to make the process more timely and efficient by providing taxpayers with an early indication of CRA’s position prior to submitting a formal request. If the early indications are negative, then taxpayers generally do not proceed with a formal ATR request. Fees are charged for the service, and written submissions are required, but the information requirements were not supposed to be as significant as for an ATR request and the response time is shorter.

In effect, the pre-ruling consultations service was meant to help achieve some of the types of improvements referred to in the Finance Committee’s report. The external consultations revealed that the PRC service was not being used very much, primarily because it requires much of the same information as an ATR request, and also because it is not available on a no-names basis.

ATR requests on anti-avoidance rules including PPT

Lori Caruthers: One of the other areas on which we received specific feedback was ATR requests on anti-avoidance rules. As the title suggested, the Finance Committee’s sixth report was issued in the context of their review of CRA’s procedures for combatting tax evasion and tax avoidance, particularly in the international area.

This raised the question of whether our willingness to entertain requests and issue ATRs on the GAAR might exacerbate such avoidance. Perhaps not surprisingly, we received strong and widespread support for us to continue entertaining requests on the anti-avoidance rules. Some went so far even to say that that is the reason they apply for ATRs.

A particular concern raised during the review was in respect of the impending anti-treaty-shopping principal purpose test or the PPT in the multilateral instrument. The concern raised was that, if we were to cease ruling on anti-avoidance rules, including not ruling on the impending PPT, taxpayers would be left in an environment of great uncertainty. We have decided that we are going to continue entertaining ATR requests on the anti-avoidance rules, and I am pleased to welcome everyone to attend the CRA Roundtable to hear more about the PPT tomorrow.

Costa Dimitrakopoulos: Internal consultations were also part of the review, and our internal stakeholders suggested that the main issue in many advance tax rulings requests in the General Anti-avoidance Rule, and that to stop issuing such rulings would result in a significant reduction in the value of ATR requests, which was not the goal of the review. This feedback supported the conclusion that we will continue dealing with advance tax rulings on anti-avoidance rules.

The other main issue raised through our internal consultation was the lack of timeliness. It is not always within the Directorate’s and CRA’s control. Key sources of delays identified were: complex issues sometimes requiring formal consultations with the Department of Finance, Department of Justice, and in some cases other governmental departments like Natural Resources Canada; taxpayers having a general lack of familiarity of content of the IC 70-6 and the expectations of the Income Tax Rulings Directorate; ATR requests often containing inadequately drafted submissions and/or a lack of objective analysis of the main areas of uncertainty; and a lack of timely response from taxpayers and their representatives to requests for additional information.

Next Steps


Costa Dimitrakopoulos: Next are the CRA's next steps in the review process and plans for implementation.

One of the key recommendations arising from the review was that the CRA should better educate the tax community about the ATR service. This was one of our objectives in this Panel. We have described the process followed for the ATR review requested by the Finance Committee and the feedback received during consultations. Now we would like to take some time to describe recommended changes, which came out of the advance tax rulings review, the plan for the implementation of these changes and possible future initiatives.

Lori Caruthers: At the completion of our review, the Minister of National Revenue reported to the Finance Committee, in a report on progress dated 29 May 2017, that a number of key changes would be implemented before the end of the year. The first was more frequent and better communications between the taxpayer and the CRA, including a meeting with taxpayers to be held no later than within four weeks of receipt of the ATR request. We think we have taken this even a bit farther. Arguably our first response to the Minister’s progress report was to strike up an ATR service-enhancement working group, which was tasked with establishing a framework to enable us to become more service-centric.

Service enhancements

The working group identified six service-enhancement opportunities:

  • communication;
  • timeliness of the ATR service to the strategic allocation of staff and monitoring of file progress;
  • accurate and timely billing, which will enhance understanding of the service provided and related costs;
  • managing expectations, meaning being more clear about what we do and how we do it;
  • tailoring the ATR service to the client by considering each client’s degree of tax sophistication; and
  • consistency and accountability by enforcing procedural consistency across the Directorate.

We think a change that you may perceive as a result of this framework is an initial contact at the four week mark. You will also see interim billing for ATR requests that are in excess of 150 hours, there will be a delivery of ATR workshops, and recognition for those clients with less tax experience.


Other key changes, over and above communication, that our Minister’s report of progress noted were that we were going to better inform the tax community about the ATR process itself by conducting workshops, by reviewing and updating IC70-6 more often, by providing a sample best practices ATR request, and by providing more frequent updates on developments and trends in the ATR service at national tax forums like this Panel.

Regarding the abovementioned workshop, we originally had a workshop scheduled for Sunday morning at this conference, whose purpose was to address the key changes in increasing awareness of the ATR program. Unfortunately, the format or the description of the workshop did not draw enough attention from the tax community. We had a handful of registrants.

We do not think this means there is no progress to be made regarding your understanding of our expectations or requirements for the ATR process - we just think we have to discover an even better way to engage you in that progress. With this in mind, we are going to continue our dialogue with the CTF to identify ways to deliver this content through other channels such as, possibly, the Young Practitioner Groups. Plans are also underway to give a similar workshop in French at an upcoming APFF Conference.

Template and revisions to IC

Regarding some of the implementation plans, I mentioned a deadline of 31 March 2018. And so on the communication side, I think we are well on track for that. For the ATR service enhancement, we have had this Panel, and we are working towards developing some more workshops. We are also developing a sample ATR request that is going to be prepared in the format of a template for inclusion in the next update of our Information Circular. We think that will be a better method of communicating our needs for your submissions.

Guidelines for rulings on questions of fact, and for refusing to rule where there is no uncertainty, are well advanced and are expected to be published within the next update of our IC. We expect there to be no surprises here - just a more explicit description of our services in these areas. We are working towards updating our IC as well as on the template to be included.

One of the specific things that was raised was on our last update to the IC. Paragraph 19(a), of the current IC reads “We will not generally issue an ATR in situations involving proposed transactions and or issues that are the same or substantially similar to those carried out by the taxpayer or related party in a previous year that is in a previous tax return.” There is currently no link between that stated requirement, and whether the same or substantially similar transactions are being considered by a tax services office or for transactions under audit. This is something that we are discussing internally, and we expect to see some kind of clarification on this in the upcoming new IC.