How authoritative are CRA information sheets? In a recent decision, Az-Zahraa Housing Society v Canada (National Revenue), 2023 FC 842, the Federal Court explained that where information sheets are more narrowly defined than the relevant legislation, they aren’t necessarily binding.
SUMMARY OF THE DECISION
Az-Zahraa Housing Society (“Society”) is a non-profit that provides affordable, rent-geared-to-income housing in Richmond, B.C. The Society asked the Minister of National Revenue (“Minister”) to be designated as a municipality for the purposes of the GST/HST rebate because providing affordable housing is deemed a municipal service. The Society’s request was denied multiple times. The issue was whether the decision-maker had relied too much on a Canada Revenue Agency (CRA) information sheet (GI-124, municipal designation of organizations providing rent-geared-to-income housing), which more narrowly defined municipal designation eligibility than the relevant section of the Excise Tax Act (s 259(1)). The Federal Court agreed that the Minister too strictly adhered to the information sheet and had not properly considered all the facts presented by the Society.
ISSUE: DID THE MINISTER FETTER HER DISCRETION?
In its definition of “municipality” the Excise Tax Act does not lay out criteria for the Minister to consider when an entity applies for this status. In contrast, the information sheet lists four criteria, including the one at issue in this case, whether the Society received government funding.
The Society had a complex agreement with BC Housing which meant that the Society didn’t receive direct funding; however, the Society sold six of its fifteen housing units to BC Housing which it leased back to the Society at no cost. In this way, the Society received “government assistance.”
The Minister found that just because BC Housing allowed the Society to rent out units owned by BC Housing and retain income, that it was “not government funding per the CRA administrative guidelines” (para 15).
Administrative decision makers are not supposed to “fetter the exercise of discretionary powers by strictly following administrative guidelines” (para 20). That means that government employees aren’t allowed to treat informal guidelines or information sheets as the law.
In this case, the information sheet more narrowly defined eligibility than the relevant section of the Excise Tax Act and the decision maker wrongly refused “to consider circumstances that fell outside the four corners of the information sheet” (para 25).
The Minister argued that she rightly imported and relied on the definition of “government funding” found in the Public Service Body Rebate (GST/HST) Regulations. The Federal Court found no reference to the Regulations in the Minister’s decision, the Regulation was not directly applicable to the Society’s application, and there was no valid rationale for requiring “government funding” as opposed to “government assistance” in an application for municipal designations.
The Federal Court granted the Society’s application. Even though the Society had already been through multiple Ministerial decisions (the first application was denied, a reconsideration affirmed the denial, and a second application was also denied), the Federal Court sent the matter back to the Minister for reconsideration by a different delegate.
This decision has similarities to the Federal Court of Appeal decision in Athletes 4 Athletes Foundation v Canada (National Revenue), 2021 FCA 145.
Both cases addressed a government decision based on either a policy statement (Athletes 4 Athletes) or an information sheet (Az-Zahraa), both of which provided a more narrow interpretation than the legislation itself.
The key takeaway from Athletes 4 Athletes is reinforced in this decision: while we (rightly) rely on CRA guidance a lot, the text of the Income Tax Act or the Excise Tax Act always take priority. It is important to know how courts interpret and apply the law when we read guidance and information sheets. Where there is clear alignment between the law and the guidance, we can have a lot of certainty. But where there is ambiguity, or the guidance goes beyond the scope of the legislation, we should be careful not to equate the guidance with the law. As we see in both of these decisions, that sometimes simply isn’t the case.
Noteworthy is provided for general information purposes and does not constitute legal or professional advice. Every organization’s circumstances are unique. Before acting on the basis of information contained in this blog, readers should consult with a qualified lawyer for advice specific to their situation.