22 | Tax Disputes
ance Rule (GAAR) — s. 245 of the Income Tax Act. It is a catch-all clause that
CRA is invoking with increasing frequency to assess taxpayers.
GAAR stipulates that, where a transaction or a series of transactions have as
the primary purpose the avoidance of tax,
then the tax benefit may be denied — if
the transaction constitutes a "misuse" or
"abuse" of the tax provisions it utilized.
The GAAR Committee is the notorious inter-departmental body within the
federal bureaucracy that makes recommendations on contentious GAAR cases.
It had 1,080 cases referred to it between
1988 and 2012, and decided in 76 per
cent (822) of those cases that GAAR did
indeed apply.
The percentage of cases that the GAAR
Committee "approves for assessment – as
opposed to turning down – has gone way
up," says Robert Couzin, a founding partner of Couzin Taylor LLP, a tax boutique
affiliated with Ernst & Young LLP in Toronto. "Over the years, CRA field offices
have become much better at preparing
their GAAR files when they send them
to Ottawa."
Of the files reviewed by the committee,
21 per cent involved surplus stripping –
pulling retained earnings and profits out
of a corporation in a form other than
dividends – and 8 per cent involved loss
creation by stock dividend.
Enacted in 1988, GAAR has been used
by CRA much more in the second half of
its history. "What they consider 'abusive'
has changed," says Al Meghji, tax litigator
and partner with Osler, Hoskin & Harcourt LLP in Calgary and Toronto.
"The transactions they first started
going after were clearly over the line,"
says Meghji. "Now they're going after
transactions where thinking people may
actually disagree. GAAR litigation is
getting more nuanced."
There were 19 GAAR cases that went
to court prior to 2005 and 26 since then.
In the first period, the Crown won only
seven, while in the latter period it won 14.
"The tax authorities have been emboldened by their success [at the Supreme
Court of Canada]," says Du Pont. A series
of judgments since 2005 by the top court
turning on GAAR has prompted CRA
to challenge tax planning arrangements
more vigorously.
wrangler/shutterstock.com
LEXPERT®Ranked Lawyers
Kierans, Patrick E.
Kim, Won J.
Kimmel, Jessica A.
Koehnen, Markus
Kolers, Eliot N.
Kroft, QC, Edwin G.
Norton Rose Fulbright
Canada LLP
Kim Orr Barristers P.C.
Goodmans LLP
McMillan LLP
Stikeman Elliott LLP
(416) 596-1414
wjk@kimorr.ca
(416) 597-4219
jkimmel@goodmans.ca
(416) 869-5637
ekolers@stikeman.com
Blake, Cassels &
Graydon LLP
Mr. Kim's practice
focuses on multijurisdictional matters in
the areas of securities,
pharmaceutical and
medical devices,
complex commercial
litigation and insurance
law. He is a frequent
speaker in Canada and
the US on class actions.
Ms. Kimmel's practice
extends to corporate/
commercial, class action
defence, securities,
professional negligence,
product liability and
insolvency litigation
at all levels of court in
Ontario and the SCC
and before provincial
securities regulators.
(416) 865-7218
markus.koehnen@
mcmillan.ca
(416) 216-3904
patrick.kierans@
nortonrosefulbright.com
Mr. Kierans is an IP
litigation lawyer based
in Toronto and the
Global Co-Head of Life
Sciences and Healthcare
for Norton Rose
Fulbright. His clients
include pharmaceutical
and technology
companies.
Mr. Koehnen's practice
focuses on corporate
governance, crossborder and investment
disputes. He has
appeared before all
levels of courts in
Canada, including
the Supreme Court
of Canada, as well as
before international
arbitration panels.
Mr. Kolers's practice
concentrates on
complex corporate
commercial,
competition, securities
and insurance litigation.
He has been involved in
numerous class actions
and has extensive
experience on matters
involving Canadian
corporations legislation.
(604) 631-5200
ed.kroft@blakes.com
Mr. Kroft's tax
litigation and transfer
pricing practice for
major Canadian
and multinational
companies includes
appearances before
the Supreme Court of
Canada, the Tax Court
of Canada, the Federal
Court and the Federal
Court of Appeal.
