Interpretation Bulletins, etc.

Regarding CRA Guidelines on what constituted scientific research and experimental development as defined in s. 248(1) and in confirming the Tax Court Judge’s focus on the tests in Northwest Hydraulic as to what constituted SR&ED, Rennie JA stated (at para. 11):

[W]hile the CRA guidance is useful context in understanding the purpose and intent of a particular provision, it is not binding on the court. The Court is guided by the rules of statutory interpretation in Canada Trustco … and by precedent.

Before going on to find that the interpretation of s. 128(2)(d) of the Act was not subject to any ambiguity and that a CRA directive should be disregarded, Trudel J.A. stated (at para 49) that "administrative policies and interpretation are not conclusive: at most they have a certain value".

After noting that in the case before him the Crown was challenging the deduction under s. 20(1)(f) of amounts paid as a result of foreign currency appreciation whereas CRA had allowed deductions under that provision based on appreciation of commodities in commodity-based loans, LeBel J. stated (at para. 59):

"However much they are to be deplored, inconsistent administrative practices are not the determinative factor in statutory interpretation. We must nevertheless return to the statute itself and to the scope of its application in respect of the specific transactions at issue in these appeals ... . If an interpretation is wrong, it does not make law."

After noting that the administrative position of the Minister had changed from a position initially supporting the taxpayer's reporting practice to one contrary to that practice, LeBel J. stated (at 6540):

"The shift in the Minister's practice is reflective of the ambiguity that inheres in the statute itself and cannot be relied upon as an interpretive tool except to support the view that the statutory definition falls short of being clear, precise and unambiguous."

After noting that the ambiguity which the Tax Court judge had found in s. 56(1)(v) was based entirely on Interpretation Bulletin IT-220R2, Noël J.A. stated (at p. 7147) that "the Act itself reflects no such ambiguity and the Bulletin, being a non-statutory document, cannot create an ambiguity where none exists in the relevant provisions of the Act."

Sexton J.A. noted (at p. 7120) with approval the indication in Canadian Occidental (U.S.) Petroleum Ltd. v. The Queen, 2001 DTC 295 (TCC) that "while the administrative position of Revenue Canada is not declarative of the law, it is nonetheless of assistance in circumstances where the Minster seeks to reassess the taxpayer in a manner inconsistent with its own administrative position."

In light of a statement made in the Canadian Tax Journal by the Senior Assistant Deputy Minister of Finance which referred to the Furniss v. Dawson, Rothstein J.A. stated (at p. 5479) that:

"I think it may reasonably be inferred that Parliament in enacting paragraph 245(3)(b), adopted the approach to a 'series of transactions' developed by the House of Lords."

Rothstein J.A. noted that the departure by the Minister in the case before him from the position taken in a CCRA Memorandum cast doubt on the validity of the interpretation now advanced by the Minister, particularly since that Memorandum reversed a position appearing in an earlier Technical Information Bulletin.

An application on behalf of the taxpayer, who had been assessed under s. 254(2), for all relevant advance income tax rulings (with names and other personal details removed) was denied because of the virtual impossibility of using the rulings for the purpose of establishing inconsistency in the Minister's interpretation and application of the relevant provisions, given the difficulties in establishing similarities between different and complex factual situations that are covered in such rulings. However, an application for disclosure for technical interpretations was granted since technical interpretations "are relatively simple and to the point" (p. 5404).

An application for reports leading up to the drafting of s. 245 and relating to testimony by various Finance officials before the Commons and Senate Committees relating to s. 245, was also rejected.

Rouleau J. found, on the basis of correspondence between a field auditor and his superiors, that it was the policy of Revenue Canada to allow an individual shareholder an interest deduction when the shareholder had received a benefit by virtue of his corporation paying interest on a loan that the shareholder had incurred for an income-producing purpose, and went on to find (at p. 5533):

"Since it was clearly Revenue Canada's practice to allow shareholders in this position to make the deductions for interest payments as if they had made the payments themselves, there can be no valid reason for prohibiting Mr. Riddell from also doing so."

Chevalier D.J. indicated that he would not allow pamphlets and other documents originating from the Minister into evidence for the purpose of showing that the Minister had bound himself in respect of the statements therein, and stated (p. 5315) that "when the Minister states what he believes to be the meaning and scope of legislation, he is simply giving an opinion".

After finding that the trial judge had erred in excluding evidence as to administrative practice and parliamentary history, Hugessen J.A. went on to state (at p. 5414):

"Parliamentary debates and evidence of administrative practice are only useful as interpretative tools where the text is ambiguous. They cannot be used, as appellant's counsel seeks to do, to create ambiguity. In our view, this text is not ambiguous."

Pamphlets and other documents originating with Revenue Canada were not admissible for the purpose of establishing that the Minister had bound himself in respect of them and that, of necessity, his actions had to be consistent with the interpretations contained in those materials.

After noting that paragraph 41 of IT-145R, dated June 19, 1981, was contrary to the taxpayer's position, Desjardin J. noted (p. 9):

"... It is now well settled that Interpretation Bulletins only represent the opinions of the Department. They do not bind either the Minister, the taxpayer or the courts and are only an important factor in interpreting the Act in the event of doubt as to the meaning of the legislation."

After distinguishing a technical interpretation of Revenue Canada, Reed J. stated (p. 6699) that "in any event, a departmental interpretation letter cannot alter the unambiguous terms of a provision of the Act."

After finding that it was apparent from reading s. 15(2) in its entirety that it applied not only to loans made to shareholders as shareholders but also to loans made in the ordinary course of business to employees who happened to be shareholders, Pratte, J.A. went on to state (p. 5364):

"In our opinion the text of the subsection is so clear that the rulings of the Department of National Revenue giving it a different interpretation should be ignored."

In finding that the taxpayer was subject to tax under ss.245(2)(c) and 69(1)(b)(ii), Linden J.A. stated (pp. 6385-6386):

"In addition, this interpretation is in harmony with Interpretation Bulletin 453 which, although not binding on this Court, is, according to the decision of Mr. Justice Dickson, 'entitled to weight and can be an important factor in the case of doubt about the meaning of the legislation'."

Before referring to a Revenue Canada, Taxation guideline, Joyal J. stated (pp. 5369-5370):

"While such an interpretation cannot bind this court or operate to change the clear wording of the statute, it does provide guidance as to the interpretation which ought to be given to ambiguous terms, especially when the administrative interpretation favours the taxpayer."

Before referring to IT-367R2 as confirming a conclusion he had already reached, Décary J.A. stated (pp. 5356-5357):

"It is well settled that Interpretation Bulletins only represent the opinion of the Department of National Revenue, do not bind either the Minister, the taxpayer or the courts and are only an important factor in interpreting the Act in the event of doubt as to the meaning of the legislation. Having said that, I note that the courts are having increasing recourse to such Bulletins and they appear quite willing to see an ambiguity in the statute - as a reason for using them - when the interpretation given in a Bulletin clearly contradicts the interpretation suggested by the Department in a given case or allows the interpretation put forward by the taxpayer."

Cullen J. relied upon the definition in IT-468 of management or administrative services.

"An Interpretation Bulletin does not, of course, have the binding effect of law (I will discuss this later) but such Bulletins do have persuasive force in the event of ambiguity."

The Department's published list of exempt health goods was used to infer that interdental stimulators should also be exempt.

Internal government memoranda and statements by ministers were admissible to assist in establishing the effect (rather than the purpose) of legislation.

"The paragraph in issue does not in any way describe the practice carried out by the plaintiff ... The Court must deal with what the taxpayer actually did."

A paragraph in the taxpayer's statement of claim describing somewhat similar practices of other taxpayers which had gone unchallenged by Revenue Canada, was struck out as being "embarrassing".

Extensive reliance was placed on statements of Ministerial policy in interpretation bulletins, in finding against the taxpayer.

Rouleau, J. stated: "I have no difficulty with the proposition that income tax interpretation bulletins may be consulted ... but these materials are not binding on Her Majesty and should be considered only as persuasive authority."

In rejecting the Crown's interpretation, Walsh, J. stated:

"Defendant's argument really is derived from Interpretation Bulletin 334R, which of course is no authority for the Court but merely expresses the way in which defendant contends the interpretation should be made."

An accountant demonstrated that neglect or carelessness within the meaning of s. 152(4)(a)(i) was not attributable to him by showing that he had relied on a Revenue Canada Guide.

It was stated to be "not without interest and significance" that two Interpretation Bulletins gave what was found to be the correct interpretation (and an interpretation favouring the taxpayer) to s. 20(1)(e).

"Administrative policy and interpretation are not determinative but are entitled to weight and can be an 'important factor' in case of doubt about the meaning of legislation."

An Inland Revenue press release was found to be relevant in allowing the taxpayer's appeals.

It was suggested that a tax information pamphlet is inadmissible on evidentiary grounds if it does not indicate on its face that it was issued by the Deputy Minister of National Revenue or, at any rate, that the Department was the author. [See also s. 244(13.1)]

S.45 of the Income Tax Act (Quebec) was modeled on the corresponding provision in the federal Act, at a time when the administrative interpretation of the federal provision was known. In a situation such as this, the federal administrative interpretation "has real weight and, in case of doubt about the meaning of the legislation, becomes an important factor."