TY - JOUR
AU - Mann,, Benjamin
AB - Abstract This article discusses the Canadian government’s efforts to curb tax planning it considers abusive through a general anti-avoidance rule, or GAAR. The authors discuss the GAAR’s history from its introduction to its current use by Canada’s tax authorities, its interpretation in Canadian courts and its impact on Canadian tax planning. They focus particular attention on the GAAR’s application to personal and offshore planning. The article concludes with a brief discussion of the Canadian government’s efforts to close the ‘gaps’ it perceives in the Canadian courts’ interpretation and application of the GAAR. Introduction to the general anti-avoidance rule Canada’s general anti-avoidance rule (the GAAR) was a reaction to taxpayers’ (and preparers’) increasingly sophisticated attempts to reduce taxes payable by relying on strict interpretations of our taxing statutes. The federal government introduced the concept in a White Paper three years after the Supreme Court of Canada affirmed that taxpayer’s could rely on these strict interpretations in Stubart Investments Ltd v The Queen.1 The Supreme Court stated that sophisticated tax planning could be defeated by, among other things, specific anti-avoidance rules, ineffective transactions and clear legislation, but that: [o]therwise, where the substance of the Act, when the clause in question is contextually construed, is clear and unambiguous and there is no prohibition in the Act with embraces the taxpayer, the taxpayer shall be free to avail himself of the beneficial provision in question.2 The Court went on to state that introducing a business purpose test, such as that used in the US would be a rejection of principles: far too deeply entrenched in our tax law for the courts to reject … in the absence of clear statutory authority.3 Draft language of the GAAR was released in 1988, with effect for transactions occurring later that year. Although the government, and practitioners, viewed this as a dramatic change in Canadian taxation at the time, the Tax Court of Canada did not release a decision on the GAAR until June 1997.4 The Supreme Court did not release any guidance on the GAAR until its seminal 2005 decision, Canada Trustco v The Queen.5 Although this decision is now 13 years old, it is still the starting point for any GAAR analysis, and so a discussion of this case will form a substantial part of this article. Subsequent Supreme Court decisions, particularly its 2011 decision Copthorne Holdings Inc v the Queen,6 will also be discussed at length. Section 245 of the Income Tax Act (Canada)7 (the ‘Act’) sets out Canada’s GAAR. The GAAR will apply to counter aggressive tax planning if it meets three criteria: the taxpayer has gained a tax benefit as a result of a transaction or series of transactions; there has been an avoidance transaction; and there has been a misuse or abuse of any provision of the Act, a tax treaty, or other federal tax laws.8 In general, Parliament introduced the GAAR to allow the Minister of National Revenue (the ‘Minister’), and the Minister’s agent, the Canada Revenue Agency (the CRA), to attack tax planning that, although in technical compliance with Canada’s tax laws, was felt to be overly abusive or aggressive. Traditionally, and in contrast to their American counterparts, Canadian courts had applied the House of Lords decision in IRC v Duke of Westminster9 to Canadian tax planning. Lord Tomlin provided the Courts’ famous statement that: Every man is entitled if he can to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow tax-payers may be of his ingenuity, he cannot be compelled to pay an increased tax.10 Following the Supreme Court’s affirmation of this principal in Stubart,11 as well as the Court’s rejection of the business-purpose test, Parliament enacted the GAAR. Statutory provisions and the application of the GAAR Tax benefit Subsection 245(1) of the Act defines a tax benefit as a reduction, avoidance or deferral of tax otherwise payable under the Act, or an increase in a refund of tax otherwise payable under the Act. It also includes tax benefits obtained by operation of a tax treaty. In practice this requirement for the application of the GAAR is almost always met, as it would be highly unlikely that the CRA would audit a taxpayer and raise the GAAR if the tax plan resulted in additional tax being paid rather than less taxes. Where the Minister has assumed the existence of a tax benefit the onus is on the taxpayer to refute the Minister’s assumption by contesting its existence.12 A deduction or credit will clearly demonstrate the existence of a tax benefit.13 Alternatively, the existence of a tax benefit can be demonstrated by a comparison with an alternative arrangement. In that case, the alternative arrangement must be one that ‘might reasonably have been carried out but for the existence of the tax benefit’.14 To date Univar Canada Ltd v R15 is the only case in which the Tax Court of Canada has determined that a tax benefit did not exist for the purposes of the GAAR. In Univar the taxpayer had incorporated a Barbados subsidiary and subscribed for shares. The subsidiary then used the subscription price to purchase debts owed to the taxpayer’s US-based parent corporation from the parent’s Netherlands-based subsidiary. The CRA applied the GAAR to reassess the taxpayer on the basis that it had owned the debts directly. Justice Bell ruled that there was no tax benefit or avoidance transaction. In determining that there was no tax benefit, he relied on previous jurisprudence to the effect that subsection 245(3) did not permit the re-characterization of a transaction to establish whether or not it is an avoidance transaction.16 In Univar, it was never intended for the taxpayer to purchase the debts, nor did it actually do so, and the Minister could not re-characterize the transaction to claim that it had done so. Therefore, when the Barbados subsidiary purchased the debts, the taxpayer did not receive any benefit, in that there was reduction, avoidance or deferral of tax payable.17 Avoidance transaction Subsection 245(3) defines an avoidance transaction as any transaction or series of transactions that results in a tax benefit, unless the transaction or series may reasonably been considered to have been undertaken for a bona fide non-tax purpose. The taxpayer bears the burden of refuting the Minister’s assumption that a transaction or series of transactions is an avoidance transaction.18 The Supreme Court of Canada has stated that this imposition is not unfair, as the taxpayer would presumably have more knowledge of the factual background.19 The avoidance transaction analysis in GAAR cases typically revolves around whether the events at issue constitute a series of transactions for the purposes of the GAAR and whether there is a bona fide non-tax purpose to some or all of the transactions. Series of transactions The courts generally define a ‘series of transactions’ broadly. In OSFC Holdings Ltd v R20 the Federal Court of Appeal adopted the House of Lords statements in Furniss v Dawson21 and Craven v White22 to the effect that for there to be a series of transactions each transaction must be pre-ordained to produce a final result. This means that when the first transaction in the series was implemented, all of the essential features of any subsequent transactions have been determined by persons with the intention and ability to implement them. There must be no practical likelihood that the subsequent transactions will not take place.23 The Supreme Court endorsed this test in Canada Trustco.24 Subsection 248(10) of the Act extends the definition of a series of transactions to include any related transactions or events completed in contemplation of the series. On the basis of this expanded definition, the Supreme Court determined that a related transaction would form part of a series of transactions whenever that related transaction was undertaken because of, or in relation to, that series.25 It did not matter whether the related transaction occurred before or after the series.26 For this reason, the Supreme Court in Copthorne determined that a series of amalgamations, followed by a share redemption, which occurred over nearly two years, could form part a of single series of transactions. The Court’s implication is that it is not concerned with the timing of particular transactions relative to each other. For example, whether the plan was created prior to a sale transaction in order to obtain a tax benefit, or was developed in order to position an offshore trust to hold a Canadian corporations’ shares, the key issue for this analysis was whether an element of planning was completed as part of or in contemplation of a series of transactions. Bona fide purposes other than to obtain a tax benefit The Supreme Court has acknowledged that the GAAR can apply to a series of transactions even if only one transaction in the series is an avoidance transaction.27 The issue is whether a particular transaction will constitute an avoidance transaction. Importantly, the courts have generally agreed that the mere fact that a transaction resulted in a tax benefit does not cause that transaction to become an avoidance transaction. The analysis hinges on whether the transaction itself had a bona fide non-tax purposes. Once the taxpayer has established that a transaction had a primary non-tax purpose, it can then establish that the decision to undertake that transaction in a manner which minimized tax was not an avoidance transaction. Alan Schwartz and Kevin Yip give the example of the taxpayer who, for primarily non-tax reasons, wants to contribute assets to the taxpayer’s corporation.28 If he chooses to do so by using one of the Act’s tax-deferred rollover provisions, that will not in itself constitute an avoidance transaction. Another commentator has suggested that this is how the courts will reconcile subsection 245(3) of the Act with the Duke of Westminster.29 In essence, taxpayers would be permitted to structure their transactions in a manner that achieves a low-tax or no-tax outcome without triggering an avoidance transaction, provided that each step in the series had a primary non-tax purpose. However: any ‘bolt-on’ transactions that are not essential to the commercial success of the tax-effective series will be avoidance transactions.30 However, where a single transaction is included in a series, the purpose of which is primarily to create a tax benefit, that transaction will be an avoidance transaction. In that case, subject to a finding of a misuse or abuse under subsection 245(4), the GAAR may apply to deny tax benefit that results from the entire series of transactions. Misuse or abuse The result of these broad definitions of tax benefit and avoidance transactions is that, as a practical matter, these issues are frequently conceded when a GAAR case is heard before the courts. The large part of the legal arguments, and therefore of the judicial commentary, is on whether the avoidance transactions constituted a misuse or abuse of provisions of the Act. When conducting the GAAR analysis, there is no distinction between an abuse and a misuse.31 Justice Rothstein, writing for the Supreme Court in Copthorne, clarified that while the terms abuse or misuse might be viewed as implying moral opprobrium to taxpayers’ actions to minimize their tax liability, which would be inappropriate.32 Rather, the GAAR is a legal mechanism whereby the courts may go behind legislative words to ensure that taxpayers’ actions are in accordance with provisions’ object, spirit, and purpose. Consequently, the courts’ first task in conducting an analysis under subsection 245(4) of the Act is to interpret the provisions at issue to determine their object, spirit, and purpose. The next task is to determine whether the transaction falls within or frustrates that object, spirit, and purpose.33 Writing for the Supreme Court in Canada Trustco, Chief Justice McLachlin and Justice Major made the following observation as to when this analysis will result in a finding of abusive tax avoidance: This analysis will lead to a finding of abusive tax avoidance when a taxpayer relies on specific provisions of the Income Tax Act in order to achieve an outcome that those provisions seek to prevent. As well, abusive tax avoidance will occur when a transaction defeats the underlying rationale of the provisions that are relied upon. An abuse may also result from an arrangement that circumvents the application of certain provisions, such as specific anti-avoidance rules, in a manner that frustrates or defeats the object, spirit or purpose of those provisions. By contrast, abuse is not established where it is reasonable to conclude that an avoidance transaction under s. 245(3) was within the object, spirit or purpose of the provisions that confer the tax benefit.34 The Supreme Court instructed future courts to undertake a ‘unified textual, contextual and purposive approach to statutory interpretation’ when attempting to ascertain a provision’s underlying object, spirit, and purpose.35 This approach has generally been treated as an iteration of E.A. Driedger’s ‘modern rule’ of statutory interpretation:36 Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.37 The Court also cautioned that where Parliament has specified precisely what conditions must be satisfied to achieve a particular result, it is reasonable to assume that Parliament intended taxpayers to rely on these provisions to achieve that result,38 subject to a subsequent caution that statutory context and purpose may reveal (or resolve) latent ambiguities.39 Writing in Copthorne, Justice Rothstein, largely summarizing the above quote from Canada Trustco, stated that a finding of abusive tax avoidance will occur: where the transaction achieves an outcome the statutory provision was intended to prevent; where the transaction defeats the underlying rationale of the provision; or where the transaction circumvents the provision in a manner that frustrates or defeats its object, spirit, or purpose.40 Unlike in the tax benefit and avoidance transaction prongs of the GAAR test, the taxpayer does not bear the burden of demonstrating the object, spirit, or purpose of a provision which the Minister contends has been misused. At least in part because the Minister: is in a better position than taxpayers to make submissions on legislative intent with a view to interpreting the provisions harmoniously within the Act’s broader statutory scheme,41 the Minister bears this burden. Courts are entitled to rely on a range of resources when determining a provision’s object, spirit, and purpose. They may cite the relevant provisions and provide their own interpretations.42 They might also rely on previous case law that has determined a particular provision’s object, spirit, and purpose.43 The Supreme Court has also relied on academic literature discussing tax policy.44 One way to determine a provision’s object, spirit, and purpose is to rely on government documents which were released at the time the provision was enacted. Courts have relied on these extrinsic materials to conduct GAAR analyses in Desmarais v The Queen,45Gwartz v The Queen,46Descarries v The Queen47 and other cases. The Supreme Court confirmed that these materials can be relied on to interpret provisions of the Act in Imperial Oil Ltd v The Queen,48 although this case did not specifically reference the GAAR. Schwartz and Yip also suggested that, in the course of defending against a GAAR assessment, taxpayers could request information or documents through Canada’s access to information laws.49 This could be used to request records relating to the policy behind specific provisions of the Act or the government’s policies with respect to certain transactions.50 The ‘object, spirit and purpose’ analysis is intended to allow taxpayers to take advantage of specific provisions that allow for tax reduction or deferral without allowing them to do so in a manner which is contrary to Parliament’s intentions in enacting the provision. For example, the Act allows taxpayers to transfer assets to trusts in favour of their spouses on a tax-deferred basis, and doing so will not generally trigger the GAAR. However, if the trusts were set up off-shore in a low-tax or no-tax jurisdiction, there was no effective economic change of interest or control or use of the transferred assets, and the intended result, which actually occurred, was a net-tax benefit to the taxpayer, the GAAR may be applicable. Finally, the Supreme Court has also stated that where the existence of abusive tax avoidance is unclear, the benefit of the doubt should go to the taxpayer.51 The role of economic substance in the GAAR analysis The GAAR is not designed to re-characterize transactions, or to ensure that the tax consequences of transactions’ legal form match their economic substance. It will only apply where a provision of the Act has been misused or there has been an abuse of the Act as a whole. However, the economic substance of a transaction may still be relevant to the GAAR analysis, for example by demonstrating the existence of an avoidance transaction or of a result that is contrary to the object, spirit, and purpose of certain provisions. For example, a trust which pays $100 of after-tax dollars into a wholly owned corporation should be entitled to take out $100 free of tax. If the corporation then pays that $100 into its wholly-owned subsidiary, the trust should still only be able to take $100 out of the structure free of tax. If the trustees were to direct a series of transactions in order to cause a doubling-up of the first corporation’s paid-up capital, the trust would, on a literal reading of the Act, be entitled to take out $200 from the corporate structure tax-free. This fact, which could be contrary to the object, spirit and purpose of certain provisions of the Act,52 might inform the courts’ analysis that there has been a misuse or abuse of these provisions or the Act as a whole. The GAAR might then apply to prevent the trust from taking out any more than $100 tax-free from its corporate structure. In this case, the GAAR would not be used to re-characterize a taxpayer’s transaction or cause its tax treatment to match its economic result per se. However, in denying the tax benefit arising from a misuse or abuse it may have that same result. Consequences of a successful GAAR assessment Statutory provisions The specific consequences of a successful reassessment on the basis of the GAAR is set out in subsections 245(2) and (5) of the Act. Generally, subsection 245(2) provides that when the GAAR applies to a transaction, the tax consequences shall be determined as is reasonable in the circumstances in order to deny the tax benefit that would otherwise occur. Subsection 245(5) expands on this to include, among other things, disallowing or allowing deductions, allocating amounts or deductions, re-characterizing the nature of payments or other amounts or ignoring tax effects, all in order to deny a benefit. In addressing the Minister’s power to reassess tax consequences as are ‘reasonable in the circumstances’, the Tax Court of Canada has stated the following: [W]hile ‘reasonable’ is a relative term and what is reasonable must depend on all of the circumstances, its determination is clearly not a discretionary act on the part of the Minister. It would be wholly unacceptable if in reviewing the Minister's decision on what is ‘reasonable’ the court were fettered by the theory that the Minister's decision was a discretionary one and the rules about reviewing a discretionary act and showing deference to the Minister's decision had to be observed. However far reaching section 245 may be, it does not confer discretionary powers on the Minister, either in the decision to apply it or in the determination of its consequences.53 This statement is a clear reflection of the courts’ intention to retain some degree of control over the consequences of GAAR reassessments. The general intent behind subsections 245(2) and (5) is that where the GAAR applies to a particular transaction, the benefit gleaned as a result of any avoidance transaction is undone. However, it should be noted that the taxes that arise as a result of a GAAR reassessment are applied under the GAAR, not under other provisions of the Act which they might otherwise have arisen under. For example, in Copthorne, the GAAR applied to re-characterize payments to shareholders as dividends rather than returns of capital. Had dividends actually been paid on the transaction, they would have been subject to requirements to withhold and remit a portion of the dividend to the CRA. Obviously, since the taxpayer had taken the funds as a return of capital to which withholding did not apply, this had not been done. The Court decided that because the liability for taxes arose under the GAAR, there was no technical requirement to withhold taxes.54 This reasoning makes sense, as under subsection 245(7) of the Act, a taxpayer cannot self-assess under GAAR, and therefore could not have withheld and remitted tax that arose on the basis of a GAAR reassessment. However, the CRA has taken the position, which has been confirmed by the courts, that where interest has accrued on taxes arising as a result of a GAAR reassessment, that interest will accrue from the time tax would have been payable on the relevant transaction, and not from the date on which the GAAR-based reassessment was made.55 Penalties arising on successful reassessments Subsection 163(2): gross negligence penalties The Act includes several penalties of general application. One of the most commonly applied penalty provisions is the ‘gross negligence penalty’ set out in subsection 163(2). Where a taxpayer has knowingly, or in circumstances amounting to gross negligence, made a false statement or omission in a return, subsection 163(2) provides that the taxpayer can be liable to a penalty of up to 50 per cent of the amount of tax that would have been payable but for the statement or omission. These penalties are civil rather than criminal penalties; they do not require a finding of guilt by a court nor do they result in a criminal record for the taxpayer. Consequently, the standard required to apply gross negligence penalties is lower than the standard required for a finding of criminal culpability. However, it is still higher than simple careless or negligence. It is more than just a failure to use reasonable care, and must include a high degree of negligence tantamount to intentional acting, or an indifference as to whether the law is complied with or not.56 This has also been interpreted as a burden, on the part of the Minister, to prove on a balance of probability such an indifference to appropriate and reasonable diligence in a self-assessing system as belies or offends common sense.57 Generally, the CRA does not apply gross negligence penalties to GAAR reassessments. In 2006 the CRA was asked whether it would consider applying gross negligence penalties to a GAAR reassessment, when the CRA had publicly stated that it would apply GAAR in the taxpayer’s circumstances.58 The taxpayer was aware of this prior statement, but genuinely believed CRA’s position was wrong based on the jurisprudence. CRA agreed that they would probably not apply GAAR in these circumstances. However, the CRA also commented that it could apply gross negligence penalties if it was possible to prove that the taxpayer knowingly, or in circumstances amounting to gross negligence, made a false statement or omission in his return, for example, where the taxpayer disregarded jurisprudence in support of the GAAR’s application in circumstances similar to his own. The courts have commented on the application of gross negligence penalties to other, more specific anti-avoidance rules. In Mady v The Queen,59 the taxpayer was reassessed on the basis that he had, unknowingly, triggered a specific anti-avoidance rule by using a spousal attribution rule to reduce his and his spouse’s total tax burden. This attribution rule had applied such that dividends paid to him were taxed in his wife’s hands. The CRA auditor applied gross negligence penalties as part of her reassessment, on the basis that the taxpayer should have known that he, rather than his wife, should have had to pay taxes on these dividends. His wife had paid these taxes as a result of the attribution rule he relied on. The Court stated that in circumstances where taxpayers rely on advice from highly qualified tax practitioners they should not also have to have knowledge that certain beneficial tax consequences that they are relying on are blocked by specific anti-avoidance rules with complex purpose tests to determine their application.60 There was no evidence to the effect that the taxpayer was aware of the application of the specific anti-avoidance rule in issue, or that he was wilfully blind to its application.61 He had received advice from his long-time accountant. Applying this reasoning to the GAAR, recall that it is a complex provision which includes a detailed purpose test for each provision that taxpayer’s rely upon. Based on this, and CRA’s published statements, it seems unlikely that gross negligence penalties could be applied in circumstances where the GAAR was used to reassess a transaction, barring jurisprudence that clearly indicated that the GAAR would be applicable to reassess a particular transaction. Section 163.2: third party civil penalties Parliament introduced the so-called ‘preparer penalty’ in its 1999 Federal Budget. To date only two cases have made their way through the courts, with one, Guindon v The Queen,62 decided by the Supreme Court of Canada in 2015. The Court confirmed that these penalties, although potentially substantial, are civil and not criminal penalties. To be subject to penalties under section 163.2, persons must have committed ‘culpaple conduct’, as that term is defined in subsection 163.2(1) of the Act. This provision requires a similar degree of negligence as subsection 163(2), and defines culpable conduct as conduct, whether an act or a failure to act, that: is tantamount to intentional conduct; shows an indifference as to whether the Act is complied with; or shows a wilful, reckless or wanton disregard of the law. Penalties must between a low of $1000 and a high of the lesser of (i) the penalty that the taxpayer would be liable to under subsection 163(2) if they had made the statement at issue and known that it was false, and (ii) $100,000 plus the preparer’s gross compensation in respect of the false statement that could have been used by on or behalf of the taxpayer. Although the CRA has not applied this provision in the context of the GAAR, it has publically commented on situations where it may do so.63 Where a taxpayer, and a tax preparer, engage in tax planning which jurisprudence (in this particular case Supreme Court of Canada jurisprudence) has determined is abusive and subject to reassessment under the GAAR, the CRA stated, citing its Interpretation cited above in the discussion of subsection 163(2), that it would consider applying gross negligence penalties to the taxpayer. CRA continued that it would consider applying third-party civil penalties, if it determined that its administrative criteria for applying them were met. Criminal tax evasion There are no reported cases of tax planning which was reassessed as abusive under the GAAR being the subject of criminal prosecution. Generally, tax evasion is a true criminal offense governed under section 239 of the Act. It includes making false or deceptive statements in a return, disposing of records in order to avoid the payment of tax, evading compliance with the Act or payment of tax or conspiring to do any of these, and several other offenses. A person found guilty under this provision must be fined between 50 per cent and 200 per cent of the amount of tax sought to be evaded and be sentenced to a maximum prison term of 5 years. As true criminal offences,64 the burden of proof is on the Crown to prove all elements of the offences laid out in section 239 beyond a reasonable doubt. This includes the actus reus, the criminal act itself, and mens rea, the guilty mind. The courts have determined that in convicting under subsection 239(1), it is necessary that the accused have had the actual intention to commit the offence at issue (eg to file returns known to be false or evade the payment of tax), rather than have simply been negligent, even grossly negligent, in failing to do so. The CRA can also choose to proceed under section 380 of the Criminal Code of Canada,65 which states that anyone is guilty of an offence who, by ‘deceit, falsehood or other fraudulent means … defrauds the public … of any property [or] money’. Individuals found guilty under this provision can be sentenced to up to 14 years in prison. Neither of section 239 of the Act or section 380 of the Criminal Code have been applied in any case in which the GAAR, or any other anti-avoidance provision in the Act was used to defeat the taxpayer’s planning. Generally, the cases distinguish between wilfully evading taxes (for example by making statements which the taxpayer knows to be false) and participating in an aggressive tax avoidance scheme. Where taxpayers are participating in an aggressive tax avoidance scheme, they may be subject to a reassessment of taxes owing, interest and penalties, but will not be subject to criminal prosecution.66 Overview of the GAAR’s impact since its introduction Approximately 60 cases have been decided at various levels of court pursuant to the GAAR since its introduction in 1989. The Supreme Court decided four of these decisions,67 and the Federal Court of Appeal (the second-highest court which reviews tax decisions in Canada) decided approximately 20. As the jurisprudence has developed over time, there is consistent debate among practitioners as to whether the application of the GAAR to a particular transaction is a matter strict application of judicial principles, or a ‘smell test’ based on the auditor’s (or judge’s) particular view of a transaction. Some researchers have attempted to provide a framework of circumstances in which the GAAR might apply. Jinyan Li and Thaddeus Hwong attempted an empirical assessment of the GAAR’s application in 2013.68 Although there analysis is somewhat dated, they reached the conclusion that the GAAR is fairly consistently applied to loss utilization transactions. This conclusion has been supported in more recent literature.69 They also found evidence that the GAAR was more likely to apply when the amount in dispute was in excess of $1 million. Michael Dolson has also found that, at least among the federal courts, large corporations dealing with significant sums of tax dollars avoided, were more likely to lose GAAR appeals.70 A significant number of GAAR cases might also be categorized as so-called ‘surplus stripping’ cases, where taxpayers attempt to extract corporate surplus either on a tax-free basis or at capital gains tax rates, rather than as dividends. Although the Tax Court of Canada has ruled that there is no general scheme in the Act against surplus stripping71 CRA disputes this position.72 In any event, the Canadian Department of Finance (‘Finance’) is of the view that CRA has had mixed success in using the GAAR to combat surplus stripping and attempted to introduce amendments to the Act to combat it in 2017.73 Finance has since stated that it will not proceed these amendments as drafted.74 At the Canadian Tax Foundation’s 2012 annual conference, the CRA provided statistics for the period between the GAAR’s introduction in 1989 and 2012. The panelists disclosed that during that period, a total of 1080 cases were referred to the GAAR Committee (an ad hoc committee of senior CRA officers and officials from Finance and the Department of Justice discussed in more details later in this article).75 The single most common transaction to be challenged under the GAAR was surplus stripping, which accounted for 21 per cent of referrals to the GAAR Committee and 24 per cent of GAAR reassessments. After a broad ‘miscellaneous’ category the next most common transactions were Kiddie Tax76 avoidance transactions (9 per cent of referrals), loss creations via stock dividends (8 per cent of referrals) and transactions relating to capital and non-capital losses (6 per cent of referrals). Income splitting and offshore trust planning accounted for 2 per cent and 1 per cent, respectively, of GAAR referrals.77 Interestingly, the CRA’s statistics did not include 1363 RRSP78 strip files, 78 Barbados spousal trust files, and over 300 files in which provincial GAAR equivalents were applied.79 Most of these cases were not subject to judicial decision. CRA does not generally release information as to how many of its GAAR cases (or potential GAAR cases) have been resolved either at the audit stage, or as part of CRA’s internal objections processes.80 Post-Canada trustco application of the GAAR to personal and off-shore planning Included below are summaries of some of the more significant examples of offshore and personal trust planning that the courts have reviewed under the GAAR since its introduction. Mil (Investments) SA v The Queen81 In MIL (Investments), the appellant was a Cayman-islands company wholly owned by Jean-Raymond Boulle. The appellant held shares of Diamond Field Resources Ltd. (DFR), which had inadvertently discovered a property with significant mineral deposits and attracted significant interest from mining companies. In 1995, the appellant exchanged a portion of its DFR shares for the common shares of Inco Limited, a Canadian corporation, on a tax-deferred basis the appellant was then continued in Luxembourg, and subsequently disposed of its shares in Inco Limited and a portion of its DFR shares for substantial proceeds. The appellant claimed an exemption from Canadian tax on the resulting capital gains under the Luxembourg–Canada Tax Treaty.82 In August 1996, all of the shareholders of DFR sold their shares in DFR to Inco Limited. Again, the Appellant claimed an exemption under the Luxembourg–Canada tax treaty from the $425.9 million capital gain. The Minister applied section 245 and denied the exemption. The appellant appealed to Tax Court of Canada. The Court noted that tax treaties must be interpreted in the same manner as domestic legislation when conducting GAAR analysis due to the retroactive 2005 amendments to section 245 to specifically refer to tax treaties.83 The Court found that the August 1996 sale was not an avoidance transaction. It was a sale by all of the shareholders of DFR, and was the result of a bidding war. It was not orchestrated by Mr Boulle for his own personal tax benefit. The Court determined that the sale was undertaken primarily for a bona fide purpose other than to obtain the tax benefit.84 The Court then considered whether there was a series of transactions, or any transaction in that series, that was an avoidance transaction within the meaning of paragraph 245(3)(b). The series included the Appellant’s exchange of DFR shares for Inco shares which reduced the Appellant’s holding of DFR shares to below 10 per cent so that the Luxembourg–Canada Tax Treaty exemption could apply. It also included the continuation of the Appellant into Luxembourg. The Court found that none of the transactions in the series were avoidance transactions—each transaction was undertaken in order to ensure Mr Boulle financial stability. Mr Boulle’s primary objective for each transaction in the series was to extract his wealth in a substantive form by realizing a gain on the sale of a portion of his DFR shares. The desire to effect the sale of shares in a tax effective manner was a secondary objective.85 The Court also concluded that the August 1996 sale could not be considered to be part of the series of transactions because it was too remote. In considering the meaning of ‘series of transactions’, the Court concluded that there must still be a strong nexus between the transactions in order to be considered part of the series of transactions. To include the August 1996 sale as part of the series due to the mere possibility of its occurrence at the time of the other transactions in the series would incorporate an extreme degree of remoteness into the phrase which could not have been the Supreme Court’s intention in Canada Trustco.86 In obiter, the Court offered some additional comments regarding the appellant’s continuation into Luxembourg and whether there was abusive tax avoidance under the Canada–Luxembourg Treaty. It stated: … There is nothing inherently proper or improper with selecting one foreign regime over another … the selection of a low tax jurisdiction may speak persuasively as evidence of a tax purpose for an alleged avoidance transaction, but the shopping or selection of a treaty to minimize tax on its own cannot be viewed as being abusive. It is the use of the selected treaty that must be examined [emphasis in original].87 The Court determined that the appellant was entitled to rely upon a treaty provision carefully negotiated between Canada and Luxembourg and that this could not be viewed as a misuse or abuse. If Canada took issue with the preferable tax rates of its treaty partners, it should address this issue by renegotiating those tax treaties.88 McClarty Family Trust v The Queen89 In McClarty, the taxpayer had left his employer to start a competing business. He set up a holding corporation and family trust, and in 2003 and 2004, was able to extract value from his business and translate it into capital gains taxable in the hands of his three children. The taxpayer’s children were minors with no income and were taxed at a lower rate than he would have been if the gain had been taxed in his hands. The Minister found the impugned transactions to be an unacceptable circumvention of section 120.4, and applied GAAR to disallow the tax benefits from the transactions. Section 120.4 specifically targets income splitting strategies by taxing split income at the highest marginal rate. The appellants argued that the purpose of the transactions were to insulate the taxpayer’s business from creditors. The primary motivating element behind each transaction was to protect the assets of the taxpayer’s business in the face of possible litigation threatened by the taxpayer’s former employer.90 The Court accepted the appellant’s submissions and found that there was a bona fide non-tax purpose for each of the transactions in the series. In its analysis, the Court reiterated that the determination of the primary motivation behind the transactions involves an objective assessment of intent at the time the transaction was undertaken and not at some later time with the benefit of hindsight91 and that a transaction cannot be considered an avoidance transaction simply because an alternative transaction would achieve the same purpose while resulting in higher taxes.92 As the Court determined that none of the transactions in the series were avoidance transactions, it did not need to consider whether there was a misuse or abuse. Antle v The Queen93 Antle concerned the elimination of tax on capital gains arising from the disposition of shares with a significant accrued capital gain. Essentially, the taxpayer’s strategy was to transfer shares with an accumulated gain, on a tax-deferred basis, to a Barbados-resident trust in favour of his wife. The trust would then sell the shares to the taxpayer’s wife at fair market value. The capital gain resulting from this sale would not be subject to tax in Barbados. As a result, there would be no capital gain when the wife subsequently sold these shares to a third party. The Court found that the trust had not been properly constituted, and therefore never came into existence. While this was sufficient to dispose of the matter, the Court offered some further comments in obiter regarding the potential application of GAAR had the trust been valid. The focus of this analysis was whether the avoidance transaction was abusive. Concluding that GAAR applied to the 1980 tax treaty between Barbados and Canada by virtue of the Income Tax Convention Interpretation Act,94 the Court went on to apply a textual, contextual, and purposive approach to the analysis of provisions in the Act and the treaty. The Court found that the taxpayer took advantage of the Act and the treaty, as well as the conflicting treatment of residence status under each, to create a spousal trust that was resident in Barbados. The taxpayer argued that taking advantage of an Article of the treaty cannot be an abuse of the treaty. In response, the Court referred to the preamble of the treaty, which stated that the purpose of the treaty is in part for the purpose of preventing tax evasion.95 The Court also noted that the policy within the Act is to ensure that liability for tax is not escaped by the establishment of an offshore trust.96 Ultimately, the Court concluded that the avoidance transaction was abusive as it ‘blatantly frustrated the object, spirit and purpose of the rollover/attribution regime’97 of the Act as well as a general objective of the Treaty. Were it not for the treaty certain provisions of the Act, either the trust or the taxpayer would have been taxed on the gain. Despite the difficulty in finding the non-taxation of the trust to be abusive of the treaty: [t]he object, spirit and purpose of the Canadian legislation as it pertains to a Canadian resident is not to be swept aside because the policy of the Treaty … might save the Trust, especially when one considers an overarching policy of entering treaties to prevent tax avoidance by Canadian residents.98 While the Court’s analysis regarding the GAAR in this case were made in obiter and therefore is of limited authoritative value (the Federal Court of Appeal upheld the Tax Court’s decision, but did not refer to its discussion of the GAAR), it is interesting to note that the approach taken is not entirely consistent with other decisions. The Court concluded that the transaction was abusive because it frustrated the general objective, spirit, or purpose of a tax regime or a tax treaty. This kind of sweeping analysis introduces significant uncertainty to the otherwise detailed provisions of the Act, as expressly cautioned against in Canada Trustco. Similarly, as the courts in MIL (Investments) and McClarty concluded, one might argue that it is inappropriate for the Minister to use section 245 to fill the gaps left by Parliament in the Act or in Canada’s carefully negotiated tax agreements with other countries. CRA’s positions on the GAAR The Act tasks the Minister with its enforcement, which includes the application of the GAAR as necessary. As agent for the Minister, the CRA is responsible for carrying out these responsibilities on the Minister’s behalf. The decision as to whether the GAAR applies to a particular transaction is a legal one which the courts will ultimately decide; it is not an administrative one to be decided by CRA. However, CRA will raise the possibility of reassessing a taxpayer on the basis of the GAAR and make the initial reassessment. The CRA commented on its internal processes for making a GAAR assessment at the 2016 Canadian Tax Foundation Conference.99 Prior to CRA’s comments, tax practitioners had largely understood that reassessments on the basis of the GAAR required the approval of the ‘GAAR Committee’, an ad hoc committee made up of representatives from various CRA directorates, Finance and the federal Department of Justice. The CRA clarified that when GAAR-related issues arise on audit, advice is obtained from the Abusive Tax Avoidance and Technical Support Division in Headquarters (‘Headquarters’). Generally, the relevant Tax Services Office (TSO) (ie the CRA office responsible for auditing taxpayers in a particular region) will review the facts of a file and reach a determination as to whether there has been an avoidance transaction. Where the transactions under audit are similar to situations previously considered by the GAAR Committee that resulted in a recommendation to apply GAAR, generally the TSO will propose to the taxpayer to apply the GAAR, and obtain the taxpayer's representations. The TSO will then refer the matter to Headquarters with the taxpayer's representations (if any), to obtain Headquarters’ recommendation. Where the matter has not previously been considered by the GAAR Committee, and the GAAR is likely in the primary assessing position, the TSO will refer the matter to Headquarters before issuing a proposal letter to the taxpayer. Headquarters will in turn generally refer the matter to the GAAR Committee. The TSO will only proceed with the proposal letter on Headquarters’ recommendation. Headquarters may not bother referring the matter to the GAAR Committee if it believes there are no grounds for applying the GAAR. Finally, CRA stated that any submissions received from the taxpayer are forwarded to Headquarters and, where applicable, the GAAR Committee, and that taxpayers should be assured that all their arguments will receive careful consideration. Although CRA does not regularly publish GAAR Committee referrals, or the number of audits in which the GAAR has been applied, available government documents do state that the GAAR Committee had considered 1203 cases as of March 2014.100 Although at least one practitioner has commented that the relatively small number of situations in which the GAAR Committee has decided to apply the GAAR indicates that CRA uses it in a restrained fashion,101 CRA’s more recent admission that it does not consult the GAAR Committee in the ordinary course suggests that it might rely on the GAAR as an assessing position more often than these statistics indicate. Example: the GAAR and personal tax planning—recent commentary from the CRA regarding the taxation of trusts Canadian tax practitioners rely heavily on commentary from the CRA to determine whether a transaction is likely to result in a GAAR assessment if audited. Of particular concern to tax practitioners is ensuring that wealth can be transferred between successive generations, particularly through the use of personal trusts, without incurring more tax than necessary. Generally, subsection 107(2) of the Act allows for a tax-deferred rollover of trusts’ capital assets to beneficiaries, provided the transfer results in a disposition of the beneficiaries’ interest in the trust. In this case the gain is deferred either until the beneficiary disposes of the assets or dies (subsection 70(5) of the Act deems taxpayers to dispose of their assets immediately before their death, subject to certain rollover provisions). However, where the disposition is made to a non-resident beneficiary, subsection 107(5) of the Act effectively provides that the disposition will result in a deemed capital gain at fair market value (FMV) to the trust. This result can be problematic where Canadian-resident parents have established a trust for their children, one or more of whom has since emigrated, most often to the USA. In order to ensure access to the tax-deferred rollover in subsection 107(2), trusts will sometimes include Canadian-resident corporations as beneficiaries. These corporations are themselves owned by the non-resident beneficiaries, but are deemed to be residents in Canada by operation of certain provisions of the Act and the Canada–US Tax Treaty. The effect of this rollover is that any latent gains are deferred, but the non-resident beneficiary retains his or her indirect economic interest in the transferred property. This type of planning is especially important when a trust is reaching its 21st anniversary, as pursuant to subsection 104(4) of the Act it will be subject to a deemed disposition of its assets at FMV at that time. In order to avoid this tax, the trust must distribute its assets to beneficiaries. For obvious reasons, it is preferable that this transfer occur on a tax-deferred basis pursuant to subsection 107(2). CRA has recently commented on these types of transactions. In one Interpretation,102 CRA discussed a hypothetical where a trust distributed assets to a Canadian corporation under subsection 107(2), where the corporation was owned by one or more non-residents. Importantly, the distributed assets were assumed to be assets that would not be exempt from tax if they were owned directly by an individual who emigrated from Canada. CRA took the position that this planning was inconsistent with the intention of subsection 107(5), which, CRA asserted, was to maintain Canada’s ability to tax capital gains that accrue during the period that property is held by a Canadian-resident trust. CRA also stated that these transactions contravened one of the underlying principles of the taxation of the capital gains regime, which is to prevent the indefinite deferral of tax on capital gains. Accordingly, CRA felt that this type of planning frustrated the object, spirit, and purpose of subsections 70(5), 104(4) and 107(2), as well as of the Act as a whole. The CRA stated that it would likely apply the GAAR to this type of planning. In making these determinations, CRA cited a previous Interpretation103 where it was asked to comment on a situation where a trust had distributed assets to a Canadian-resident corporate beneficiary in advance of the trust’s 21st anniversary. The corporate beneficiary was owned by another Canadian resident trust. Had the first trust made the distribution to the other trust directly, subsection 104(5.8) would have applied to continue the 21-year period from the time that the first trust acquired the assets. CRA determined that it would apply the GAAR to this type of planning. It proposed to do so on the basis that it circumvented subsection 104(5.8) of the Act in a manner which frustrates the object, spirit, and purpose of that provision, subsection 104(4) and the Act as a whole. CRA was especially concerned that this type of planning could be repeated indefinitely with the potential result that capital gains would never be recognized. CRA’s relatively recent announcements that it will apply the GAAR to reassess trust distributions are not based on any particular court decisions. But they are an example of the kind of announcements that CRA has made in order to deter what it feels to be aggressive tax planning using trusts. Requirements to disclose aggressive tax planning Reporting requirements compared to foreign jurisdictions Although Canadian tax practitioners have noted the recent trends towards more extensive reporting measures in foreign jurisdictions, the Canadian federal government has not yet introduced comparable legislation.104 However, the Canadian government has signed agreements with several countries allowing for the exchange of tax information. These include tax information exchange agreements (TIEAs) generally modelled on the Organization for Economic Co-operation and Development's model TIEA. It also includes some more particularized legislation designed to encourage international financial transparency. For example, in 2014 the federal government enacted an Intergovernmental Agreement between Canada and the USA which allowed the implementation of the US Foreign Account Tax Compliance Act (FATCA) in Canada. This legislation can require financial institutions to provide Canadians’ financial information to the Internal Revenue Service (the IRS) where there are indicia that these are US persons for tax purposes. A challenge to the constitutionality of enforcing FATCA in Canada was defeated.105 One notable exception to Canada’s relative lack of reporting requirements is its tax-shelter registration regime. The regime is targeted at marketed tax shelter schemes intended to allow purchasers to reduce their taxes owing by buying into the tax shelter. Subsection 237.1 defines a tax shelter as a gifting arrangement or property, wherein, having regard to statements or representations made with respect to the arrangement or property, it can reasonably be considered that the person entering into the arrangement or purchasing the property will, within four years, be able to take deductions which exceed the cost of entering into the arrangement or acquiring the property. Although the federal government lacks jurisdiction to close these arrangements, which under Canada’s federalist model is a provincial matter, the Act requires them to register with CRA and obtain an identification number. Tax shelters which fail to do so can be penalized up to 25 per cent of the value of the consideration received. Taxpayers who enter into unregistered tax shelters can be reassessed in order to disallow any of the tax benefits otherwise resulting from the shelter. With the exception of this specific provision targeting marketed tax-reduction arrangements, there is no requirement for taxpayers or tax practitioners to specifically disclose aggressive planning which may otherwise be subject to the GAAR. Recent moves towards increased reporting requirements Although not specific to planning contemplated under the GAAR, there have been recent efforts to increase reporting of trust-related tax planning. Effective for calendar year-end 31 December 2016, changes to Canadian trust’s tax returns (referred to here as T3s) required that trusts report whether they held shares of a private corporation, and whether there had been any beneficiaries added to the trust over the course of that year. Adding corporate beneficiaries to trusts with non-resident beneficiaries can be a tax-planning technique to have assets remain in Canada while the non-resident beneficiaries retain their economic interest. As noted above, this can occur by having the trust distribute assets to these beneficiaries on a tax-deferred basis under subsection 107(2). The 2018 Federal Budget introduced additional trust reporting requirements, effective for taxation year 2021 and onwards. Previously, a trust that did not earn income or did not make distributions to beneficiaries was not required to file a T3. Trusts were also not generally required to report their beneficiaries. In order to ‘improve the collection of beneficial ownership information with respect to trusts’,106 Finance has introduced reporting requirements for Canadian resident trusts and non-resident trusts that, pursuant to certain deemed residency rules in the Act, are required to file a Canadian tax return.107 If these new requirements apply to a trust, the trust will also be required to report the identities of its trustees, beneficiaries and settlors as well as the identity of any person who has the ability to ‘exert control over trustee decisions’ regarding appointments of income or capital. This would include roles such as protectors, which are less common on Canadian trusts but are frequently used overseas. While not explicitly linked to international efforts to combat aggressive tax planning, these new reporting requirements are in keeping with this trend. Concluding remarks Canada’s efforts to crack down on aggressive tax planning using the GAAR have had limited success. Although the federal government introduced the GAAR nearly 30 years ago, the number of cases successfully pursued under it remain limited, with the consequences of reassessment generally restricted to a reassessment of back taxes owed, plus interest. At least one author has suggested that amendments to the GAAR may be necessary in order to make it more effective, in particular by requiring courts to consider the economic substance of transactions in question and providing guidance as to the meaning of ‘economic substance’.108 The primary way that aggressive tax planning is deterred is through direct changes to the legislation which may not be precise enough to capture the type of planning that the government views as being abusive. Offshore trusts and hybrid entities and their use for tax planning involving Canadian residents is a case in point, although the government has made significant changes to other provisions of the Act. In 2012 the government introduced new legislation governing the taxation of offshore trusts. This legislation (although ultimately not as expansive as was initially proposed) completely revised the provisions of the Act applicable to offshore trusts. It also introduced new provisions attributing taxable income to Canadian residents with interests in certain offshore investment funds. In its 2015 Federal Budget, Finance introduced significant changes to one of the Act’s specific anti-avoidance rules designed to prevent surplus strips. As noted above, Finance was not content with these amendments or the GAAR, and attempted to introduce another anti-avoidance rule in 2017, although it has, for now, paused this effort. Additional amendments have been made to a variety of spousal trust rules, deeming provisions, foreign affiliate income attribution rules, and other provisions. This indicates that Finance and the CRA may be placing less reliance on GAAR as a mechanism of preventing tax planning they find abusive. Similarly, the CRA has also undertaken ‘audit initiatives’ which target certain types of taxpayers it believes is more likely to engage in aggressive tax planning and/or tax evasion. In 2011, the CRA launched a Related-Party Initiative (RPI) targeting high net worth individuals controlling a substantial number of private entities. The audit process under the RPI could begin with a questionnaire of approximately 20 pages or longer, and include requirements to disclose details of ‘unlisted’ companies, trusts, partnership, joint ventures and other entities.109 More recently, in late 2017, CRA announced its ‘postal code project’ targeting Canadian taxpayers living in wealthy neighbourhoods. While Canada has made efforts to increase reporting obligations for off-shore or other aggressive tax plans, these have been far less extensive than those of other similarly situated countries. While the GAAR was introduced to be an effective catch-all for aggressive tax planning otherwise not caught by strict application and reading of the sections of the ITA governing the tax plan, it has been much more of a benign threat rather than an effective deterrent. Mary Anne Bueschkens is a leading private client lawyer with extensive experience in providing legal advice and expertise to large multinational private clients regarding international taxation, corporate structuring, and succession planning. Mary Anne provides counsel to private clients, businesses, investment groups, trust companies, philanthropists, and institutional and individual trustees and fiduciaries. She advises on tax, commercial structuring, corporate governance, business succession planning, estate, trusts, and philanthropic matters. E-mail: mabueschkens@millerthomson.com. Benjamin Mann is a tax associate in Miller Thomson LLP’s Toronto office. He has experience in developing corporate and trust structures in both domestic and international contexts. He has also assisted in preparing administrative and judicial appeals on behalf of taxpayers. E-mail: bmann@millerthomson.com. Footnotes 1. [1984] 1 SCR 536 [Stubart]. 2. ibid at 580. 3. ibid at 540. 4. RMM Canadian Enterprises Inc et al, v The Queen, 97 DTC 302; McNichol et al v The Queen, 97 DTC 111. 5. [2005] CTC 215 [Canada Trustco]. 6. 2011 SCC 63 [Copthorne]. 7. RSC 1985, c.1 (5th Supp). 8. See Canada Trustco. 9. [1936] AC 1 (HL) [Duke of Westminster]. 10. ibid at 19. 11. Above n 1. 12. Canada Trustco (n 5) at para 63. 13. ibid at para 20. 14. DG Duff and others, Canadian Income Tax Law (3rd edn, LexisNexis 2009) 187, cited in Copthorne (n 6) at para 35. 15. 2005 TCC 723 [Univar]. 16. ibid at para 39. 17. ibid at para 44. 18. Canada Trustco (n 5) at para 63. 19. ibid. 20. 2001 FCA 260 [OSFC]. 21. [1984] AC 474 (UK HL). 22. [1989] AC 398 (UK HL). 23. OSFC (n 20) at para 24. 24. Canada Trustco (n 5) at para 25. 25. ibid at para 26. 26. ibid. 27. ibid at para 34. 28. Alan Schwartz and Kevin Yip, ‘Policy Forum: Defending Against the GAAR’ (2014) 62(1) Canadian Tax Journal at 134. 29. H Michael Dolson, ‘The GAAR Post-Copthorne: Where We’ve Come From, and Current Applications’ (2017) 6(1) Prairie Provinces Tax Conference (Toronto: Canadian Tax Foundation, 2017) at 3 [Dolson]. 30. ibid. 31. Copthorne (n 6) at para 73. 32. ibid at para 65. 33. Canada Trustco (n 5) at para 44. 34. ibid at para 45. 35. ibid at para 47. 36. Brian J Arnold, ‘Policy Forum: Some Thoughts on the Supreme Court’s Approach to the Determination of Abuse Under the General Anti-Avoidance Rule’ (2014) 62(1) CTJ at 123. 37. EA Driedger, Construction of Statutes (2nd edn, Carswell 1983) at 87, quoted in ibid. 38. Above n 5 at para 11. 39. ibid at para 47. 40. Copthorne (n 6) at 72. 41. Canada Trustco (n 5) at para 65. 42. See Canada Trustco, ibid and Copthorne (n 6). 43. See Lipson v The Queen, 2009 SCC 1 [Lipson] at para 29. 44. See ibid at para 31, Copthorne (n 6) at para 116. 45. 2006 TCC 44 at paras 30–33. 46. 2013 TCC 86 [Gwartz] at para 68. 47. 2014 TCC 75 at para 54. 48. 2006 SCC 46 at paras 57–59. 49. Schwartz and Yip (n 28) at 138. 50. ibid. 51. Canada Trustco (n 5) at para 66. 52. See Copthorne (n 6). 53. XCO Investments Ltd v R, 2005 CarswellNat 3664, 2005 TCC 655 at 39. 54. Copthorne Holdings Ltd v R, 2007 CarswellNat 2808, 2007 TCC 481. 55. JK Read Engineering Ltd v R, [2015] 2 CTC 2023 (TCC) at para 43. 56. Venne v The Queen, 1984 CarswellNat 210, [1984] CTC 223 at para 37. 57. Sidhu v The Queen, 2004 TCC 174, [2004] 2 CTC 3167, at para 23. 58. CRA Views, Conference, 2006-0196021C6—Pénalités/penalties (6 October 2006). 59. 2017 TCC 112, 2017 DTC 1065. 60. ibid at para 149. 61. ibid at para 150. 62. 2015 CarswellNat 3231, 2015 SCC 41 [Guindon]. 63. CRA Views, Conference, 2009-0327071C6—Opérations de type Lipson = Lipson-Type Transactions (Document is in English and French) (9 October 2009). 64. The SCC definitively determined that s 239 of the Act creates criminal offences in Knox Contracting v Canada, [1990] 2 SCR 338. 65. RSC 1985, c. C-46, as amended [Criminal Code]. 66. See Kleysen v The Queen, 1996 CarswellMan 441, [1996] 2 CTC 201, Vermette v The Queen, 1999 CarswellSask 271, [1999] 3 CTC 270. 67. Mathew v The Queen, 2005 SCC 55, Canada Trustco (n 5); Lipson (n 43) and Copthorne (n 6). 68. Jinyan Li and others, ‘GAAR in Action: An Empirical Exploration of Tax Court of Canada Cases (1997–2009) and Judicial Decision Making’ (2013) 62 CTJ 321–366. 69. Dolson (n 29) at 24–25. 70. ibid. 71. See Gwartz v The Queen, 2013 TCC 86, at paras 49–51. 72. See 2012-0433261E5 – 55(5)(f) and surplus stripping (18 June 2013) and 2014-0538091C6—Impact of the Descarries case (10 October 2014). 73. Department of Finance Canada, Tax Planning Using Private Corporations, 18 July 2017, at 58. 74. Department of Finance Canada, ‘Targeted Tax Fairness Measures Will Protect Small Business Owners Including Farmers and Fishers’ (19 October 2017). 75. See McCarthy Tétrault, Canada Tax Service - 245 – Tax Avoidance available on TaxnetPro. 76. The so-called ‘Kiddie Tax’ is a tax on certain forms of passive income received by children aged 17 and younger. It is a specific anti-avoidance rule designed to prevent ‘income sprinkling’ to family members with lower marginal tax rates. 77. Above n 75. 78. Registered Retirement Savings Plans, a form of tax-deferred savings account that Parliament introduced to encourage Canadians to save for retirement. 79. Above n 75. 80. Once a tax matter is appealed to the courts it is a matter of public record and information is more accessible. 81. 2006 TCC 460 [MIL], affirmed in 2007 FCA 236. 82. Formally The Convention Between Canada and The Grand Duchy Of Luxembourg for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital. 83. Mil (n 81) at para 28. 84. ibid at paras 37–41. 85. ibid at para 53. 86. ibid at paras 64–69. 87. ibid at para 72. 88. ibid at para 74. 89. 2012 TCC 80 [McClarty]. 90. ibid at para 53. 91. ibid at para 30. 92. ibid at para 47. 93. 2009 TCC 465, affirmed in 2010 FCA 280 [Antle]. 94. RSC 1985, c. I-4. 95. ibid at para 97. 96. ibid at para 95. 97. ibid at para 117. 98. ibid at para 98. 99. See CRA Views, Conference, 2016-0672091C6 (29November 2016) GAAR Assessment Process. 100. <https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/annual-report-parliament/canada-revenue-agency-annual-report-parliament-2013-2014/canada-revenue-agency-annual-report-parliament-2013-2014-12.html> (last accessed 17 April 2018). 101. Brian Arnold, ‘The Long, Slow, Steady Demise of the General Anti-Avoidance Rule’ (2004) 52(2) Canadian Tax Journal at 493. 102. CRA Views 2017-0724301C6: 2017 CTF - Q1 - 21 year planning & NR beneficiary (21 November 2017). 103. CRA Views 2017-0693321C6: 2017 STEP - Q2 - GAAR and 21-year planning (23 October 2017). 104. For example, the European Union recently introduced the ‘Proposal for a Council Directive as regards mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements’. This proposal would require tax advisors such as accountants and lawyers, or their clients when professional obligations prevent advisors from reporting, to report potentially aggressive cross-border planning. This includes transactions where the planner is entitled to a fee based on the amount of the tax advantage resulting from the arrangement; the transaction has the effect of converting income into capital, gifts or categories of income which are more favourably taxed; the transaction includes transfers between associated enterprises which result deductions without inclusions of cross-border payments, whereby the recipient is not tax resident in any tax jurisdiction; or transactions which have the effect of undermining reporting obligations. 105. Hillis v Canada (Attorney General), [2016] 2 FCR 235, 2015 FC 1082. 106. Canada, Department of Finance, ‘Tax Measures: Supplementary Information’ (27 February 2018) at 15. 107. The new rules include exemptions for certain trusts, including trusts that have been in existence for less than 3 months or that hold less than $50,000 in assets throughout the taxation year, provided their holdings are in deposits, government debt obligations or listed securities. 108. Brian Arnold,. ‘The Canadian Experience with a General Anti-Avoidance Rule’ Toronto: Goodmans LLP at 5–6. 109. David Lewis, ‘Highway to Hell: The CRA’s High Net Worth Initiative’ (2011) Tax Notes, No 582. © The Author(s) (2018). Published by Oxford University Press. All rights reserved. This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/journals/pages/about_us/legal/notices)
TI - Canada and the GAAR: a catch-all for abusive/avoidance tax planning
JF - Trusts & Trustees
DO - 10.1093/tandt/tty169
DA - 2019-02-01
UR - https://www.deepdyve.com/lp/oxford-university-press/canada-and-the-gaar-a-catch-all-for-abusive-avoidance-tax-planning-q9QFZcpCb1
SP - 75
VL - 25
IS - 1
DP - DeepDyve
ER -