Published: August 22, 2023
Last Updated: September 1, 2023
Who determines the correct tax treatment when interpreting a particular income tax provision?
The provisions in the Income Tax Act can be exceedingly difficult to interpret for those who are not accustomed to the language used by the legislature. The provisions in the Income Tax Act also do not set out how to apply each provision in practice, which can potentially confuse a taxpayer who is trying to understand how the provision applies to his or her situation. For this reason, the Canada Revenue Agency (CRA) releases publications in an attempt to educate taxpayers. These publications can take the form of Guides and Pamphlets, Tax Forms and Schedules, News Releases and Tax Alerts, GST/HST Memoranda, information circulars, and CPP and EI Regulations. In general, the correct tax treatment is determined by looking to the relevant provisions in the Canadian Income Tax Act, and looking to tax court decisions on the matter. This means that while CRA publications can be looked to for guidance, the publications are not legally binding and they do not consider the tax treatments of each taxpayer’s specific situation. In addition, while the CRA is responsible for enforcing and administering the Income Tax Act, it’s not responsible for interpreting the Income Tax Act. As such, to interpret the law as written in the Income Tax Act one must look to the binding authority in the case law or consult with a top Canadian tax lawyer. However, note that even though the CRA itself is not bound by its own publications, they nearly always follow them.
The tax auditor is not bound by the CRA’s previously issued guidelines when conducting an audit on your tax returns. The doctrine of estoppel cannot be invoked to prevent the CRA from issuing an assessment that contradicts a previously issued ruling or other document. This principle was established by the Supreme Court of Canada in the case of Stickel v MNR. The final say is always with the Tax Court and appeal courts, and while these courts occasionally consider CRA publications in their judgment, these CRA publications do not always accurately reflect the tax issues in question. Tax laws can be exceedingly complex and are changed frequently, so the nuances of their application may not be fully captured by a published ruling or other CRA-issued publication. To ensure you are not offside the law, consulting with an experienced Canadian tax lawyer is always advisable.
The CRA Provides Guidance to Taxpayers in the Form of Income Tax Folios
Income tax folios, also known as tax folios, are comprehensive and authoritative documents that offer detailed explanations and interpretations of various provisions of the Canadian Income Tax Act. The purpose of these folios is to assist taxpayers, Canadian tax professionals, and CRA personnel in understanding and applying the tax laws correctly.
Income tax folios cover a wide range of topics, including specific tax rules, concepts, and transactions. They aim to provide guidance on the interpretation of tax legislation and how it applies in different situations. These publications often include examples, case law references, and explanations to illustrate the application of the tax laws. Folios are regularly updated by the CRA to reflect changes in tax legislation, new court decisions, and developments in tax policies. Income tax folios are considered valuable resources for taxpayers and Canadian tax professionals as they offer insights into the CRA’s interpretation of tax laws and can help in understanding complex tax issues and tax planning strategies. However, it’s important to remember that folios are for general guidance purposes only and should not be considered as legal advice as they are not legally binding, as explained above. For specific tax situations, it is always advisable to consult experienced Canadian tax lawyer to ensure that your situation is being handled in accordance with the Income Tax Act.
The CRA Also Provides Guidance to Taxpayers in the Form of Interpretation Bulletins
Canada Revenue Agency (CRA) interpretation bulletins are publications that provide guidance on the interpretation of specific provisions of the Canadian Income Tax Act and other tax-related laws. In 2013, the CRA introduced income tax folios, gradually phasing out the income tax interpretation bulletins. Several outdated bulletins have already been canceled, and the remaining bulletins are still available until their technical content is updated and published into an income tax folio. These bulletins are issued by the CRA to help taxpayers, Canadian tax professionals, and CRA personnel understand the tax laws and how they apply to different situations. Interpretation bulletins typically focus on a particular aspect of tax law or address specific tax issues. They offer explanations, examples, and references to relevant tax legislation and court decisions to illustrate how the CRA interprets and applies the law.
Unlike income tax folios, which are comprehensive and cover a wide range of topics, interpretation bulletins are more targeted and specific in their scope. They are used to clarify the CRA’s position on particular tax matters and may be updated periodically to reflect changes in tax laws or new developments in tax policies. Interpretation bulletins are available on the Canada Revenue Agency’s website and can be accessed by taxpayers, tax professionals, and the general public. One should be extra cautious when reading an interpretation bulletin, as these were not published and updated as recently as income tax folios, so their content could potentially be obsolete.
The CRA’s website explains that “Taxpayers and their representatives may continue to refer to the interpretation bulletins for explanations of the CRA’s interpretation of federal income tax law, keeping in mind the caution that has always applied: While the comments in a particular paragraph in an interpretation bulletin may relate to provisions of the law in force at the time they were made, such comments are not a substitute for the law. The reader should, therefore, consider such comments in light of the relevant provisions of the law in force for the particular taxation year being considered, taking into account the effect of any relevant amendments to those provisions or relevant court decisions occurring after the date on which the comments were made.” As always with CRA publications, these publications are valuable resources for understanding the CRA’s interpretation of tax laws, but they should not be considered as legal advice. Only an experienced Canadian tax lawyer is capable of providing such legal advice.
An Additional Form of Guidance Issued by the CRA is Information Circulars
Information circulars are issued by the CRA, and are documents that provide detailed explanations and interpretations of specific tax laws and regulations. They aim to provide guidance to taxpayers, tax professionals, and other interested parties on various tax-related matters. These circulars typically provide examples, calculations, and case studies to illustrate how the tax laws and regulations are applied in specific situations. They are a valuable resource for taxpayers and tax professionals to understand their tax obligations and rights under Canadian tax law. Like the other forms of guidance issued by the CRA, they are not legally authoritative documents.
Published Rulings from the CRA can Provide Taxpayers with Guidance, but Should be Used with Caution
A published ruling is a ruling issued by the CRA that has been officially published and made available to the public. A published ruling from the CRA typically provides guidance and interpretation on various tax laws, regulations, and policies. These rulings are meant to help individuals, businesses, and tax professionals understand how the CRA interprets and applies tax laws in specific situations, and can give the taxpayer an advance idea of how the CRA will view one’s actions.
Pro Tax Tip: CRA tax auditors may make mistakes even when interpreting CRA publications
When a notice of objection is sent to the CRA in response to a notice of assessment or reassessment, the CRA tax auditors that review these notices of objection are not lawyers and do no have substantial legal training. This means that as with CRA publications, their word is not the law, and could very well be a misinterpretation of the complex provisions in the Income Tax Act or even a misinterpretation of the CRA position. While there are extensive resources online for tax-related legal matters to supplement CRA publications, these resources do not take into account the facts and circumstances of each individual taxpayer. An analysis of these facts and circumstances are vital to arriving at a principled legal conclusion in any tax matter. The CRA tax auditor could very well misapply the law to those facts and circumstances of a taxpayer, or arrive at a conclusion that is not supported by the facts. If you believe that this has happened to you, it is important to know that the CRA does not have the final say on the issue, and an experienced Canadian tax lawyer can assist you in correcting the mistake made by the CRA and getting the situation resolved in your favour.
How does the CRA inform taxpayers regarding their rights, responsibilities, and obligations?
There are CRA publications that exist to inform taxpayers about their rights, responsibilities, and obligations related to taxes and other programs. These include Guides and Pamphlets, Tax Forms and Schedules, News Releases and Tax Alerts, GST/HST Memoranda, information circulars, and CPP and EI Regulations. The same rules apply to these publications as the ones listed above, as they are not legal advice and not the law, but the CRA will nearly always follow their own publications.
I have received a notice of (re)assessment but do not agree with the CRA’s position on the matter. What should I do?
The tax audit division at the CRA enjoys extensive powers to assess taxpayers with limited information, and their assessments can at times be arbitrary in nature. These tax auditors employed by the CRA are not legal experts, and can misapply or misinterpret provisions of the Income Tax Act and CRA publications when issuing notices of assessment to taxpayers. If you believe the CRA’s position is mistaken, you should consult one of our top Canadian tax lawyers to assist you in drafting a thorough and principled legal argument which will increase your chances of successfully contesting the CRA’s position on the matter.
This article just provides broad information. It is only up to date as of the posting date. It has not been updated and may be out of date. It does not give legal advice and should not be relied on. Every tax scenario is unique to its circumstances and will differ from the instances described in the article. If you have specific legal questions, you should seek the advice of a Canadian tax lawyer.
"This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. 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 the articles. If you have specific legal questions you should consult a lawyer."