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Appendix B:
The 1985 and 1991 Rulings and the
Report of the Auditor General

In his May 7, 1996 report, and in testimony before the Committee, the Auditor General and his officials concentrated on two particular advance tax rulings, issued by Revenue Canada in 1985 and 1991. This Appendix canvasses as thoroughly as possible the specific concerns the Auditor General expressed with respect to those rulings. It concludes that the rulings were well-founded in law and that it was appropriate for Revenue Canada to issue them. To that extent, the Committee's findings do not support the Auditor General's critique of the rulings. This Appendix also concludes, however, that some of the Auditor General's procedural concerns, having to do with the means by which the rulings decisions were reached and recorded, were justified. The Appendix therefore includes several procedural recommendations for the attention of the Minister of National Revenue.

1. Advance tax rulings

The Income Tax Act and Regulations run to over 2,000 pages of dense and complex law. Given that complexity, a taxpayer who contemplates a novel or unusual transaction often cannot be certain what the tax effect of the transaction will be. To give taxpayers the certainty they need, the 1967 Royal Commission on Taxation recommended that the Department of National Revenue (Revenue Canada) provide an advance ruling service to taxpayers. The service began operations in 1970.

Advance tax rulings are official interpretations by Revenue Canada of how the Income Tax Act will apply to a particular planned transaction. They are available to all taxpayers. In 1995, Revenue Canada's Rulings Directorate received 478 ruling requests (as well as about 1,500 requests for less formal tax opinions and 17,000 telephone enquiries).

There is nothing inappropriate about the existence of an advance rulings process. Indeed, committee witnesses and other commentators have almost unanimously cited the importance of the process to the smooth operation of the income tax system. The following remark by David Perry, senior research associate at the Canadian Tax Foundation, is typical:

10 - The Globe and Mail, May 14, 1996

The Auditor General has repeatedly expressed strong support for the provision of advance rulings. The 1993 Report of the Auditor General included an overwhelmingly favourable review of the rulings process. Appearing before the Committee on the present matter, the Auditor General emphasized the benefits rulings provide to taxpayers:

11 - May 28, 1996. Unofficial translation of comments in French: Comme je l'ai dit dans mon rapport de 1993, l'objet des déci sions anticipées est de promouvoir l'observation volontaire, l'uniformité et l'autocotisation en garantissant des consé quences fiscales des opérations qu'envisagent les contribuables. En supprimant le doute quant aux conséquences d'une opération particulière, les décisions anticipées fournissent une certitude au contribuable. Nous continuons de croire qu'un service de décisions anticipées juste et équitable demeure un volet important du mécanisme d'administration fis cale.

The Committee endorses these comments, and is grateful to the Auditor General for having clarified that the advance rulings service itself is not at issue.

2. The transactions in question

The particular transactions under scrutiny were the subject of advance tax rulings given in 1985 and 1991. Both transactions involved the Income Tax Act's taxpayer migration rules, and in both cases the principal taxpayers were trusts.

As outlined in the main body of this Report, the Act treats a trust that emigrates from Canada with capital property, or that distributes capital property to a non-resident beneficiary, as having disposed of the property, unless the property is taxable Canadian property (TCP). As a result of this deemed disposition the trust realizes any accrued capital gain or loss on the property, and Canadian tax may be payable. If a trust emigrates from Canada with TCP, or distributes TCP to a non-resident beneficiary, taxable capital gains on that property will remain subject to Canadian tax, to the extent allowed under any applicable tax treaty.

In both the 1985 and the 1991 cases, trusts held shares of public corporations, which they had acquired in earlier transactions in exchange for private corporation shares. One of the trusts proposed to distribute those shares to a non-resident beneficiary; the other proposed to emigrate from Canada. The tax effect to the trusts thus depended on whether the shares were TCP. If the shares were TCP, then any accrued gain would not be taxed immediately, but Canada would, subject to treaty, tax any actual gains on the property once they were realized. If the shares were not TCP, any accrued gain would be taxed at the time of emigration or distribution, but Canada would not tax any further gain.

In most circumstances, public corporation shares are TCP only if the shareholder has 25% or more of any class of the shares of the company. In both the 1985 and the 1991 cases, the taxpayers were trusts that held less than 25% of the shares of a public corporation. Both of these trusts had acquired their public corporation shares in a rollover transaction in exchange for shares of a private corporation. Where the property given up in such a transaction is TCP, the property that replaces it is also TCP. If the private corporation shares the trusts gave up on those rollovers were TCP to the trusts, then the public corporation shares they took back were also TCP.

What was unclear, and required advance tax rulings from Revenue Canada, was whether the private corporation shares the trusts had given up on the rollover were TCP to the trusts. TCP is a concept that is usually relevant to non-residents and emigrants, since Canada taxes Canadian residents on gains from TCP and other property. These taxpayers were residents of Canada at the time of the rollovers. The key question, upon which the rulings ultimately turned, was whether property could be TCP to a resident of Canada.

Canada's tax treaties typically preserve Canada's right to tax former Canadian residents on their capital gains on properties they held while resident in Canada. This right is maintained for a limited number of years after the former resident has left Canada, and it is available only where the former resident was resident in Canada for a specified period before emigration. The Canada-United States treaty, for example, allows Canada to tax a U.S. resident individual's gains (on property other than Canadian real estate and certain business property, which Canada can always tax) only if the individual:

One effect of these requirements is that if a trust is created less than 10 years before it leaves Canada, there may be no way under the treaty for Canada to tax the trust's gains on TCP.

In the transaction that was the subject of the 1991 ruling, a trust resident in Canada had as its beneficiary a trust that had moved to the United States less than 10 years after having been created in Canada. It was therefore possible that gains on TCP transferred by the Canadian trust to the emigrant beneficiary would, as a result of the treaty, escape taxation in Canada even if the beneficiary disposed of the property immediately after receiving it. This possibility complicated the issues involved in the 1991 ruling.

There is one further complication in the facts relating to the 1991 ruling. This concerns the details of the Income Tax Act's rules relating to trust distributions. As described above, a trust can distribute TCP to a non-resident beneficiary with no immediate tax consequence. The policy on which this rule is based is that gains on the TCP will, subject to treaty, remain taxable in Canada. However, if the transferred property is deemed, rather than actual, TCP of the trust, an argument exists (12) that the deeming rule that gives it that status may not extend to deeming it also to be TCP of the non-resident beneficiary. Since the 1991 ruling involved the distribution by a trust of shares that were deemed under a rollover rule to be TCP (13), this rather technical point might be relevant to the ultimate outcome of the transaction. Although the question does not seem to have been raised at the time of the ruling, nor in the Auditor General's report, it did form part of the Auditor General's criticism of Revenue Canada's handling of the 1991 ruling request in testimony given to the Committee. P>

12 - The Committee understands that Revenue Canada does not accept this argument, and considers property deemed to be TCP to the trust to remain TCP to the non-resident beneficiary.

13 - This assumes that Revenue Canada was correct to hold that property can be TCP to a resident of Canada.

To summarize, the core interpretive issue raised in both the 1985 and the 1991 transactions was whether property could be said to be taxable Canadian property, or TCP, to a resident of Canada. If it could, then the public company shares held by the taxpayers were in turn TCP, and would not be subject to a deemed disposition when the taxpayers either left Canada or distributed the shares to a non-resident beneficiary. Instead, Canada would retain its right to tax gains on the property indefinitely, subject to treaty.

3. The Revenue Canada rulings

The Committee has heard comparatively little about the 1985 ruling, and it has not been the focus of either the Auditor General's or the Committee's work. Revenue Canada's conclusion in the 1985 ruling was that an emigrant's shares of a public corporation that the emigrant had acquired on a rollover while a resident of Canada were TCP to the shareholder. Implicitly, therefore, Revenue Canada concluded that property could be TCP to a resident of Canada.

Five months after issuing the 1985 ruling, Revenue Canada gave a different taxpayer a non-binding opinion which directly contradicted the more formal (and binding) ruling. There is no indication that Revenue Canada was aware of the inconsistency at the time. As noted later in this report, the Department has since put in place systems to ensure more consistency among its opinions, rulings and other publications.

Relatively more documentation is available with respect to the 1991 ruling. As part of a thorough canvassing of the relevant issues, Revenue Canada sought advice from the Department of Finance as to the policy intention of the Income Tax Act's rules regarding taxable Canadian property. The Department of Finance replied in writing to the effect that in policy terms property could be taxable Canadian property to a resident of Canada. Revenue Canada also obtained a written legal opinion from its Department of Justice counsel. The legal opinion confirmed that the Act contemplated that property could be TCP to a resident. Based on these views, Revenue Canada concluded that the private corporation shares the taxpayer had given up were indeed TCP, with the result that the public corporation shares it acquired in exchange were also TCP.

As a condition of providing the 1991 ruling, Revenue Canada obtained an undertaking and a waiver from the taxpayer. As noted above, the 1991 transaction involved a distribution of trust property to a beneficiary that had itself been a Canadian resident in the past. If the property was TCP, then any gains the beneficiary realized on the property would remain taxable by Canada for a fixed period after the beneficiary's departure from Canada. Since, however, the beneficiary was a trust that had been created less than 10 years before leaving Canada, the tax treaty would have entitled it to full protection of its gains from Canadian tax (14). The undertaking amounted to a commitment by the taxpayer not to invoke treaty protection from Canadian tax if it disposed of the property within 10 years. The waiver permitted Revenue Canada to reassess the Canadian trust, regardless of the time limits imposed under the Act, if the non-resident beneficiary were ever to take the position that the property transferred to it was not TCP.

14 - The terms of the treaty would, however, allow the full amount of the gain to be taxed in the country in which the beneficiary is resident.

Another aspect of the 1991 ruling which has absorbed a great deal of the Committee's time is the chronology of the events described above. Revenue Canada received the ruling request on November 7, 1991. In early December there began a process of discussions with the taxpayer and among Revenue Canada, the Department of Finance and the Department of Justice. During this period, the prevailing view at Revenue Canada seems to have been that a ruling ought not to be given. There is no indication that this represented anything more than a provisional conclusion. On December 23, 1991, Revenue Canada officials held a series of meetings. Revenue Canada also met with officials of the Department of Finance to learn whether the ruling raised any tax policy issues, and with staff of the Department of Justice to obtain their interpretive views. The decision to provide the ruling was reached that same day, and Revenue Canada communicated the ruling to the taxpayer's representative on December 24, 1991. It is the Committee's understanding that the date on which the ruling was issued reflected the taxpayer's interest in undertaking the proposed transactions before the end of the taxpayer's then-current taxation year.

4. The Auditor General's substantive and process concerns

The Auditor General's report of May 7, 1996 identified a number of concerns with the rulings described above, and particularly with the 1991 ruling. Although these concerns were not organized thematically by the Auditor General, the Committee has found it helpful to group them as follows:

(a) Substantive concerns

(b) Process concerns

(a) Substantive concerns of the Auditor General

As described above, the core technical issue upon which both the 1985 and the 1991 rulings turned was whether property can be taxable Canadian property (TCP) to a resident of Canada. Largely on the basis of policy advice it received from the Department of Finance and the legal advice of its Department of Justice counsel, Revenue Canada concluded that property could be TCP to a Canadian resident.

The Committee heard a great deal of testimony on this difficult point. Perhaps not surprisingly, Revenue Canada, Finance and Justice officials all maintained that, given the Income Tax Act as a whole, Revenue Canada's conclusion was correct. These officials pointed to other provisions in the Act, particularly a rule relating to transfers to partnerships, that seem to contemplate that result.

The Auditor General and his officials maintained that Revenue Canada's technical interpretation was incorrect. The Auditor General summarized this opinion in his first appearance before the Committee:

15 - May 28, 1996.

This was not a view shared by the panel of prominent tax lawyers and accountants who testified before the committee. Of eight panellists, six testified that Revenue Canada's interpretation was a correct reading of the law. The opening comments of Mr. Wolfe Goodman, a vastly experienced practitioner and widely-published author in the field of international tax law, can be quoted as an example of the majority opinion:

16 - June 12, 1996.

Substantially similar comments were made by most of the other expert witnesses, who supported their views with extensive and well-reasoned references to the existing law.

Almost all witnesses also agreed that the provisions in question are somewhat ambiguous. The Committee does not consider that it has special expertise in the interpretation of ambiguous tax law - an exercise that requires familiarity with the income tax system as a whole and with its evolution as an instrument of government policy. The Committee also has no reason to conclude that the Auditor General would claim greater expertise in this area than the Committee itself. The Committee therefore concludes that it has no reason to prefer the Auditor General's view on this question to the views expressed by both Government tax experts and a strong majority of tax professionals from the private sector. Revenue Canada's interpretation on this ambiguous point did not circumvent the intent of the law.

The Committee's view that Revenue Canada was correct to decide that residents of Canada could hold taxable Canadian property does not answer what is in some ways the Auditor General's more important contention. Even if that decision was technically correct when viewed in the abstract, the Auditor General has suggested Revenue Canada ought not to have provided written confirmation of its views to the taxpayer because its consequences would be too severe.

This suggestion must be evaluated on two levels. First, is it possible and appropriate for Revenue Canada to decline to issue a ruling because of the effects the ruling might have? Second, has the Auditor General accurately described the likely consequences of this particular ruling?

Revenue Canada is under no legal obligation to issue an advance tax ruling. Revenue Canada itself decides whether or not a ruling should be given. That decision may be based on any reasonable criteria it considers appropriate. Revenue Canada could refuse to issue rulings, however well-founded the requests might be in law, for the sole reason that the contemplated transactions would (or might) be costly for the Canadian fisc.

It is a separate question, however, whether it would be appropriate for Revenue Canada to deny advance rulings for that reason alone. Especially where there is no indication that tax avoidance is the motivation for a transaction, most taxpayers would expect Revenue Canada not only to apply its interpretation of the law impartially, but also to make that interpretation available if it is sought in a ruling request. For example, few taxpayers would likely support a decision by Revenue Canada not to rule on any transaction with a total value over some arbitrary amount. The advance rulings process calls on Revenue Canada to function as the authoritative interpreter of the law, not (or at least not primarily) as self-appointed guardian of the tax base.

This does not mean that Revenue Canada is or should be blind to the nature and consequences of the transactions it rules upon. Advance rulings applications are, the Committee understands, a major source of intelligence on new tax planning and avoidance techniques. And while it has not done so, there may be good reasons for Revenue Canada to implement a policy of declining to rule where egregious tax avoidance is clearly involved. In the absence of such a policy, however, the Committee cannot conclude that it would be appropriate for Revenue Canada to base its rulings decisions solely on the anticipated effect of the planned transactions.

Even if it were appropriate for Revenue Canada to refuse potentially costly rulings, the Committee is not persuaded that either of the rulings in question would be the occasion for such a decision. First, the Committee heard no evidence that these particular transactions have already cost the Canadian fisc any actual tax revenue. With a few exceptions, Canada taxes capital gains on realization. The Committee has no way of knowing whether these taxpayers have realized any gain, or whether they would have done so had they not obtained the rulings.

Second, the Auditor General and his officials were unable to identify any significant new tax avoidance opportunity created for other taxpayers by the rulings. Any individual (including any trust) can leave Canada without a deemed disposition of taxable Canadian property, and could before the rulings. Under Canada's tax treaties, Canada forgoes most rights to tax gains realized by residents of treaty countries; the rulings did not change that. It is true that an individual who happened to hold shares of a public corporation that were acquired in exchange for shares of a private corporation could rely on the ruling to characterize the public company shares as taxable Canadian property, but the Committee has difficulty seeing that fact as much of an avoidance opportunity. As taxable Canadian property, any eventual gain on the shares will remain subject to Canadian tax unless a tax treaty intervenes, in which case the gain will normally be taxable in the treaty jurisdiction.

This does not mean that Canada's system for the taxation of emigrants' accrued capital gains is perfect. The Committee is aware of several deficiencies in the present rules that should be remedied, as discussed in the main body of this Report. None of these is a new problem, however, and none was made worse by Revenue Canada's 1985 and 1991 rulings.

The Committee concludes that there was no reason for Revenue Canada not to issue the rulings in question, once it had satisfied itself on the relevant interpretive issues. Even if Revenue Canada could justify a practice of declining to give rulings that could be costly to the fisc -- a practice that the Auditor General's 1993 report on the rulings process did not advocate -- it is unlikely that that practice would have applied to these rulings.

(b) Process concerns of the Auditor General

To be fair to taxpayers, the income tax system must apply the law consistently. The Committee shares the Auditor General's concern that Revenue Canada issued an opinion in 1985 which squarely contradicted the 1985 ruling. Even though Revenue Canada issues an immense number of opinions (close to 1,500 opinion requests were received in 1995), and does so under a rather less formal process than rulings, there is no excuse for such inconsistency. The Committee notes that since 1985 Revenue Canada has put in place systems to ensure consistency among rulings and opinions. Starting in 1993, all rulings and opinions dating back to 1986 have been maintained in an electronic research data base. This ensures that all previous opinions and rulings are easily accessed by reference to key words or relevant sections of the Act. The Committee commends this initiative.

Although questioning the legal correctness and the possible fiscal consequences of the 1985 and 1991 rulings, the Auditor General has also criticized Revenue Canada for failing to publish the rulings until March 1996, when an edited version of the 1991 document was released. This criticism is consistent with the Auditor General's 1993 recommendation that more advance tax rulings be published.

In evaluating the Auditor General's comments on this point, it is important to note that the 1985 and 1991 rulings were hardly unique in not being released. Despite media descriptions of "a secret 1991 advance income tax ruling," (17) it has in fact been Revenue Canada's practice to release only those rulings that it judges likely to be of use to a substantial number of taxpayers. The Committee has no reason to suppose that Revenue Canada did not apply that standard correctly in these instances.

17 - The Globe and Mail, May 29, 1996, p. B1.

Nonetheless, the Committee agrees that Revenue Canada ought to publish all advance tax rulings, and notes that Revenue Canada announced in November 1995 that it would release all rulings as they are given, with appropriate editing to ensure taxpayer confidentiality.

The absence of comprehensive documentation relating to the 1991 ruling has generated two concerns. The first is a concern that Revenue Canada's documentation procedures either are generally deficient, or failed in this instance. The second is a concern that the decision taken may have been influenced by unspecified external forces, perhaps including political pressure from the Government of the day.

The Committee considers the latter concern to be entirely unfounded. No witness who appeared before the Committee, including the Auditor General and his staff, had anything but praise for the professional integrity of Revenue Canada's officials. This was reflected in the following exchange:

18 - June 4, 1996.

The Committee wishes to emphasize that it too has seen no indication of political or other interference in public officials' decision-making. Suggestions of official impropriety, including media allegations of a "family trust scandal" (scandale des fiducies familiales (19)) are simply unfounded.

19 - Le Journal de Montréal, June 10 and 13, 1996.

There remains the more modest concern cited in the above remark by Mr. Minto - that Revenue Canada's documentation system failed to record these meetings at which important decisions were taken. The Committee notes that reasonable inferences as to the basis for Revenue Canada's ruling can probably be drawn from the correspondence Revenue Canada received from Finance and the ruling itself. That said, good records are essential to the institutional memory of any large organization. The maintenance of written records of important decision-making meetings would undoubtedly assist Revenue Canada itself when it wishes to re-examine the rationale for its position on a significant issue. Certainly the concerns expressed by the Auditor General in relation to the 1991 ruling might have been more readily addressed if more complete written records had been maintained.

The Committee is pleased to note that Revenue Minister Stewart announced immediately upon publication of the Auditor General's Report that she had directed Revenue Canada to take immediate steps to improve documentation of tax policy interpretations.

In a letter dated December 23, 1991, the General Director of the Department of Finance's Tax Policy Branch advised Revenue Canada that certain Income Tax Act provisions relating to taxable Canadian property were intended in policy terms to apply to residents of Canada, as well as to non-residents. This letter appears to represent the only policy advice given in writing by the Department of Finance in connection with either the 1985 or the 1991 ruling. There is no indication that the Department analyzed the likely fiscal implications of that advice, either before or after it was given.

The Auditor General has suggested that the Department of Finance ought to have examined those fiscal implications before writing the December 23, 1991 letter. The Auditor General implies that if such an examination had concluded that there would be a substantial cost, the letter would not have been written.

It seems clear that the Department of Finance need not and cannot carry out a cost-benefit analysis in respect of every tax policy question it is asked. Other things being equal, analytic resources should be devoted to those issues that have the most significance for tax revenues and general economic performance. Was the policy question that was put to the Department of Finance in the 1991 ruling one of those issues? As noted above, the Committee has no basis on which to conclude that the 1991 ruling as a whole has or will cost Canada significant amounts of tax revenue. Nor is there any reason to suppose that the narrow question put to the Department of Finance -- whether the Income Tax Act contemplates that property can be taxable Canadian property to a resident of Canada -- would have any significant fiscal impact (20). Furthermore, while the Department of Finance will often consider the potential revenue effects of proposed amendment to the Act, it is not as clear that those effects should determine the views it expresses with respect to the current law.

20 - On the other hand, a decision that residents of Canada could not hold taxable Canadian property would render at least one anti-avoidance rule in the Act meaningless. The Auditor General argued in effect that this other rule (relating to transfers to partnerships) could be ignored because it was drafted incorrectly. The argument is circular, in that the evidence that the partnership rule was drafted incorrectly is the fact that it contradicts the Auditor General's preferred interpretation.

The Committee cannot conclude that the Department of Finance ought to have carried out an analysis of the fiscal effects of the policy position it expressed in its December 23, 1991 letter.

Related to the above point is the Auditor General's observation that the Department of Finance had no documentation to support the conclusions reached in its December 23, 1991 letter to Revenue Canada. The Committee does not share this concern, which seems to be based on a misunderstanding of the purpose of record-keeping. Records are not votes that can be tallied to determine whether a decision was correct, with a decision recorded in two documents being sounder than one recorded only once. Rather, as noted above in the discussion concerning the absence of minutes of certain meetings, institutions keep records to help themselves and others understand how and why events occurred as they did. Given that the Department of Finance's letter is itself a concise explanation of the conclusions it contains, any supporting document would have been largely superfluous. As long as the letter itself was correctly filed and remained accessible, there was no need for another document to repeat the same information.

It does not follow, however, that the Department of Finance had no need to keep its own record of its meetings with Revenue Canada. The December 23 letter refers to "various issues raised at the meeting," with no indication of what those issues might be. A memorandum to file summarizing the meeting would have eliminated any subsequent speculation as to what was and was not discussed. As with Revenue Canada, the Committee suggests that the Department of Finance improve its procedures for preparing and keeping records of material relating to important decisions.

Revenue Canada's policy is to issue advance tax rulings only in respect of proposed transactions. Transactions that have been completed are normally a matter of audit, rather than the subject of rulings.

Throughout this Appendix, the key issue in the 1985 and 1991 rulings has been described as whether certain shares of a public corporation were taxable Canadian property. Since that issue in turn depended on the effect of the earlier transactions in which the taxpayers acquired the shares, the Auditor General has suggested that the rulings were effectively concerned with completed transactions, and therefore that by issuing the rulings Revenue Canada contravened its own policy.

The Committee does not share the Auditor General's view. It is clear that the distribution of property to the Canadian trust's non-resident beneficiary was a proposed transaction. On the other hand, a ruling in respect of that transaction would require Revenue Canada to make at least an implicit finding as to the effect of earlier transactions. The boundary between a proposed transaction and its antecedents is thus not always clear, and the effect of earlier transactions will, the Committee supposes, often be relevant to a ruling request. The fact that Revenue Canada separates rulings from the audit function does not mean that a ruling may not consider the effect of past events. In any event, the issue is at most a secondary administrative question relating to a division of responsibility within Revenue Canada. The Committee sees little reason to question the manner in which Revenue Canada organizes its work.

As part of the discussions relating to the 1991 ruling, the taxpayer offered to provide an undertaking and a waiver. As has already been described, the essence of the undertaking was a commitment by the beneficiary of the Canadian resident trust not to invoke treaty protection from Canadian tax if it disposed of the transferred property within a specified period. The waiver would enable Revenue Canada to reassess the Canadian resident trust beyond the normal 3-year reassessment period.

The Auditor General has questioned Revenue Canada's acceptance of a waiver in respect of the transaction, as a condition for providing a favourable ruling. As the Committee understands it, the Auditor General's analysis is based on the premises that the property in question was not TCP; that agreeing to treat it as TCP, and deferring any tax on the property's transfer to the non-resident beneficiary, would not bind the non-resident to treat it as TCP on a subsequent disposition; and that Revenue Canada thus insisted upon the waiver and undertaking as a means of enforcing a ruling inconsistent with the law.

Since the Committee accepts that the ruling given was correct in law, meaning that the property was TCP, Revenue Canada did not give up any current rights of taxation over the property in question. Instead, the waiver was a safeguard against the possibility of a finding to the contrary. If the non-resident were to successfully assert that the property was not TCP, the waiver would enable Revenue Canada to reassess the Canadian trust in respect of its gain on the property when it was originally transferred to the non-resident.

The Auditor General has also suggested that Revenue Canada would probably not be able to enforce the undertaking. The Committee is not in a position to judge whether the Auditor General is correct, although it is unaware of any reason that such a contract would not be enforceable as a matter of the general law. Even if enforcement is impossible, the Committee does not consider that Revenue Canada overestimated the significance of the undertaking. On the contrary, it is clear that Revenue Canada was fully aware of its limitations, and placed no undue reliance on it.

The Committee considers that the undertaking and waiver enhanced Revenue Canada's ability to collect tax in the event of an adverse court decision. They are, moreover, of limited significance to the substantive issues it has been asked to consider.

5. Findings and recommendations regarding concerns expressed by the Auditor General

The Committee's main findings with respect to the substantive and procedural concerns identified in the Auditor General's report can be summarized as follows:

Based on its findings, the Committee makes the following recommendations:

;