Advanced Income Tax Rulings

Geoff Currier and Evelyn Jacks

The federal government has taken steps recently to attract more investment in Canada. That’s sure to create some new tax questions that require Advanced Income Tax Rulings (AITR). A new measure to facilitate a faster response was announced on September 14 and is intended to attract business investment of large amounts. Specifically, for investments of $1 billion or more, the CRA will prioritize advance income tax rulings. The measure took effect the day it was announced. Here’s what you need to know:

The Why and the How: The prioritization of “nation building” initiatives was announced in the April 28 Spring Economic Report. In it the government noted: “priority will also be given to advance income tax ruling requests relating to investments that enhance productivity and strengthen critical sectors of Canada's economy, including clean economy initiatives and projects that may benefit from Canada's suite of clean economy investment tax credits.”

The AITR is designed to give potential investors tax certainty before they commit capital. This could be especially appealing to your foreign investor clients who will want to know the tax implications of any investment in Canada.

It's important to note that there is no legal requirement for the government to issue a ruling. 

The AITR program is handled by the Income Tax Rulings Directorate and the Rulings are binding on the CRA  to provide potential investors with tax certainty. This is only true if all the information provided to the Directorate by your client is complete. 

Performance Targets: The goal is to schedule a teleconference within 15 business days of confirming to anyone requesting an AITR that the request has been accepted. The Directorate usually issues rulings within 90 business days from when all the required information is submitted and it hits that target 91% of the time, according to recent reports on service standards. 

Lots of Detail: There is a lengthy list of reasons why a Ruling might not be submitted and if you have a client who is hoping for a Ruling, you will need to go over all of them with that client. The exceptions and other important details of the role of the Directorate can be found here:

https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/ic70-6/ic70-6-advance-income-tax-rulings-and-technical-interpretations.html#toc7

There is a Cost. The Directorate charges an hourly fee of just over $306 for AITR work. However, if your client is prepared to invest more than $1 billion, those fees will not be a deterrent. The information your client provinces to the Directorate can be shared with the CRA and other branches of government, subject to privacy laws.

A Hidden But Important Detail: Advisors are encouraged to read IC70-6R12 Advance Income Tax Rulings and Technical Interpretations for the mechanics of filing for an AITR. You’ll also find a hidden but important detail there: if future legislation changes the conditions and the Ruling is no longer supported, the CRA is no longer bound by the Ruling. The same applies if there is a court ruling which overrides the AITR. 

The Bottom Line: While the AITR is presented as a method of providing tax certainty to major investors, it is not a simple procedure. It’s also too bad that once again smaller investors will be asked to wait. 

For Laypeople: Invite your clients to listen to Real Tax News with Evelyn Jacks and Friends to help them understand their tax system better. Go to learn.knowledgebureau.com/courses/real-tax-news-podcast