For decades, one of the best sources of tax information used by advisors to research tax issues on behalf of your clients were the Interpretation Bulletins published by the Canada Revenue Agency. But the future of the ITs, as they are affectionately known in the industry, may be in doubt.
The CRA is considering either cancelling or archiving its inventory of ITs in response to comments and recommendations contained in the Auditor General's Fall Report to Parliament (November 2009) regarding the improvement and timely updating of technical information provided by CRA to taxpayers.
The concerns raised by the Auditor General were that taxpayers and other users of the ITs may not always be aware that some ITs are obsolete or contain outdated or even incorrect information.
By way of background, ITs are produced by the Income Tax Rulings Directorate of the CRA and provide the Agency’s technical interpretation and position on certain provisions of the Income Tax Act.
While the majority of taxpayers, especially individuals, likely rely on the explanations of tax law provided in other publications such as the CRA’s guides (e.g. T4044 “Employment Expenses”) and pamphlets (e.g. P151, “Canadian Residents Going Down South”) all of which are available online, most government tax auditors and many tax practitioners told the Auditor General that they begin their research into a legislative interpretation question with the ITs as their primary source of guidance.
As of December 31, 2008, there were 272 bulletins outstanding. CRA statistics point to the popularity of these ITs, with 1.5 million external (i.e. non-CRA staff) page views of the bulletins on its website for the fiscal year ended March 31, 2009. Of course, the ITs can also be accessed by tax practitioners through private subscription services.
The Auditor General found that while the CRA’s Policies and Procedures Manual contains a clear process for developing and producing an IT, there is no formal process to monitor whether it is still current or to decide whether it needs to be withdrawn or revised. In fact, since 2003, only 29 of the existing bulletins have been revised and only one new IT has been issued.
The Auditor General’s Report even pointed to an example in IT-75R4, “Scholarships, Fellowships, Bursaries, Prizes, and Research Grants,” last revised June 18, 2003, which contains information that is no longer correct.
In that IT, the CRA discusses the “scholarship exemption” as being either the first $500 or in some cases, the first $3,000. In reality, the scholarship exemption changed in 2006 such that the entire amount can now qualify for the exemption. Yet the IT remains unchanged with the incorrect, outdated information posted on the CRA’s website and can easily lead a taxpayer to over-reporting scholarship income on her tax return.
The Report recommended that the CRA “improve the information it provides to users about specific paragraphs in (ITs) that are no longer accurate, so that they can more readily comply with the Income Tax Act.”
The CRA agreed and stated that it may “opt to cancel its inventory of (ITs)…(It) will evaluate this option during 2010 and ensure practitioners are consulted and aware of any subsequent plan of action to either update these bulletins or cancel them.”
In April of this year, the Canadian Institute of Chartered Accountants and the Canadian Bar Association (CICA-CBA) Joint Committee on Taxation made a submission to Wayne Adams, the Director – Income Tax Rulings Directorate of the CRA, Policy and Legislation Branch.
In the submission, the Committee stated that ITs “remain an important source of CRA administrative guidance notwithstanding the other media used by CRA to communicate administrative positions…and that archiving all ITs pending a review of the media through which CRA provides technical information to address the concern raised in the Auditor General's Report would be counterproductive to both the CRA and taxpayers.”
Instead, the Committee recommended that the CRA could achieve its objective of updating technical information by initiating a high level review of the ITs to identify those that may no longer be current due to legislative or judicial change. Such a list could be posted on the CRA website to warn taxpayers that these ITs have been identified for review and may no longer reflect the current administrative policy of the CRA.
These identified ITs could then be prioritized to determine the order in which they are reviewed and ultimately, that review could lead either to the revocation, amendment, or perhaps even consolidation of one or more of the ITs.
In the meantime, advisors should be wary of relying solely on ITs to provide tax guidance to clients. Information contained in ITs should be cross-referenced to other sources to verify that it is, indeed, up to date and continues to reflect both the current law and the current interpretation of such law by the CRA.