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April 16, 2024

Tax Perspectives

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Please note that these publications may not be up-to-date as taxation matters are subject to frequent changes.

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Fall 2001
Volume 1, Number 2

The information in Tax Perspectives is prepared for general interest only. Every effort has been made to ensure that the contents are accurate. However, professional advice should always be obtained before acting and TSG member firms cannot assume any liability for persons who act on the basis of information contained herein without professional advice.

CCRA Issues Warning: Tax Ruling Not A Guarantee

By A. Christina Tari,
Richler and Tari, Tax Layers (Toronto)

As tax professionals, we attend the annual Canadian Tax Foundation conference with interest to hear the CCRA's current initiatives and positions. This year attention was focused on tax shelters, which are "all" the focus of examination under the Tax Avoidance Program, according to the head of the Compliance Programs Branch, Bill Baker. This program raised $581 million through reassessments issued in the 2000-1 fiscal year.

During the "roundtable" at the conclusion of the conference, attention was drawn to a CCRA press release of August 14, 2001. In this short release, CCRA alerts investors to the risks of investing in certain tax shelter arrangements, warning that there are caveats to advance income tax rulings. The Rulings Directorate, as a policy, will not rule on issues such as the existence of a business, reasonable expectation of profit, and the fair market value of a property or service. The government advises investors to be aware "that advance rulings do not necessarily guarantee proposed deductions."

What is clear from this release is that Tax Avoidance auditors will continue to audit and will deny deductions in relation to a wide range of tax shelters on the grounds that a business did not exist, that there was no reasonable expectation of profit, or that the property or service was overvalued, irrespective of a ruling. While these are not new positions for Tax Avoidance auditors to take, what is news is the government's express warning that rulings will not provide comfort on these issues.

Taxpayers can expect to see increased numbers of "tax avoidance" reassessments as CCRA continues its policy of attacking tax shelters. The best defence is for a group of investors to retain tax professionals with experience in negotiating and litigating tax shelter cases. Group representation offers investors economies of scale that individual representation cannot- an important consideration given the Crown's seemingly bottomless pockets and relentless pursuit.