29 October 1991 Administrative Letter 911956 F - Deduction of Advanced Income Tax Ruling Costs

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

We are writing in reply to your memorandum of July 9, 1991, addressed to the Hot Line of Head Office, wherein you requested technical assistance on the deductibility of advanced income tax ruling costs.  Your memorandum has been directed to us for reply. The following are the facts described in your memorandum:

Facts

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D.O. Position

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Our Comments

As stated in paragraph 8 of the IT-99R4, if the transactions proposed in the advance income tax ruling request are of a capital nature, the advance rulings costs may be deducted within the provisions of paragraph 20(1)(cc) of the Act provided the proposed transactions relate to a business carried on by the taxpayer.  It is the Department's practice to accept the costs of obtaining a ruling as a cost related to the business of the taxpayer even though there may be arguments that the proposed transactions themselves do not relate to a business carried on by the taxpayer.  Since, in our view, these costs are deductible under paragraph 20(1)(cc) of the Act, it is not necessary to consider if the advance ruling costs should form part of the disposition cost

The deduction of advance ruling costs is considered consistence with the policy purpose of the advance ruling, i.e., to encourage voluntary compliance.

Paragraph 8 of the IT-99R4 sets out the components of the advance ruling costs and distinguishes them from transaction costs (see comments in paragraph 9 of IT-99R4).  The deductibility of transaction costs will depend on the nature of the underlying transactions and the applicability of the provisions of paragraphs 14(5)b), 18(1)(a), 18(1)(b), 20(1)(a), 20(1)(b), 20(1)(e) or 20(1)(cc) of the Act, as the case may be (IT-364R and IT-364 may also be consulted).

Transaction costs and advance ruling costs may not be readily separated because they might be shown all in one legal bill.  If this is the case, details of the charges should be discussed with the firm who performed the services and the nature of the services will then be determined.  The entity that the services were related should also be determined, i.e., incorporation cost of new holding companies, if any, should be charged to the holding companies, etc.

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We trust the above comments will be of assistance.

Yours truly,

for DirectorManufacturing Industries, Partnerships and Trusts DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch