The Minister’s Burden Under GAAR Daniel Sandler Faculty of Law The University of Western Ontario Minden Gross Grafstein & Greenstein LLP

Three GAAR Requirements (1)tax benefit (2)avoidance transaction (3)abusive tax avoidance taxpayer’s burden Minister’s burden

Minister’s Burden on Tax Benefit and Avoidance Transaction Recognizing tax avoidance transactions –Substitutable transactions –Trading tax attributes –Fabricating tax attributes Minister should be selective about which files are reassessed and litigated under GAAR: only the “no- brainers” in terms of tax benefit and avoidance transaction

Minister’s Burden on “Abusive Tax Avoidance” Canada Trustco: “The first step is to determine the object, spirit or purpose of the provisions of the Income Tax Act that are relied on for the tax benefit, having regard to the scheme of the Act, the relevant provisions and permissible extrinsic aids. The second step is to examine the factual context of a case in order to determine whether the avoidance transaction defeated or frustrated the object, spirit or purpose of the provisions in issue.”

Minister’s Burden on “Abusive Tax Avoidance” OSFC: “The first stage involves identifying the relevant policy [read: purposive, object and spirit, scheme or policy] of the provisions or the Act as a whole. The second is the assessment of the facts to determine whether the avoidance transaction constituted a misuse or abuse having regard to the identified policy.”

Minister’s Burden on “Abusive Tax Avoidance” Stubart: “… when the allowance provision is read in the context of the whole statute, and with the “object and spirit” and purpose of the allowance provision in mind, the accounting result produced by [procedures blatantly adopted by the taxpayer to synthesize a loss, delay or other tax saving device] would not, by itself, avail him of the benefit of the allowance.”

Minister’s Burden on “Abusive Tax Avoidance” “… the practical burden of showing that there was abusive tax avoidance lies on the Minister. The abuse of the Act must be clear, with the result that doubts must be resolved in favour of the taxpayer. The analysis focuses on the purpose of the particular provisions that on their face give rise to the benefit, and on whether the transaction frustrates or defeats the object, spirit or purpose of those provisions.”

Minister’s Burden on “Abusive Tax Avoidance” Distinct two-step approach –determine the object, spirit or purpose of the provisions of the Income Tax Act that are relied on for the tax benefit –examine the factual context of a case in order to determine whether the avoidance transaction defeated or frustrated the object, spirit or purpose  question of law  question of fact and law (?)

Minister’s Burden on “Abusive Tax Avoidance” “It is for the Minister … to identify the object, spirit or purpose of the provisions that are claimed to have been frustrated or defeated, when the provisions of the Act are interpreted in a textual, contextual and purposive manner. The Minister is in a better position than the taxpayer to make submissions on legislative intent ….”

Minister’s Burden on “Abusive Tax Avoidance” determining the object, spirit or purpose of the provisions of the Income Tax Act. –Both sides can raise arguments, but ultimately this is a matter for the court. “object, spirit or purpose” –clear and unambiguous (OSFC) –clear (Canada Trustco (?)) –most reasonable (?)

The Role of Appellate Tribunals “Where the Tax Court judge has proceeded on a proper construction of the provisions of the Income Tax Act and on findings supported by the evidence, appellate tribunals should not interfere, absent a palpable and overriding error.” Errors of law need not be “palpable and overriding” –failure to determine object, spirit or purpose –incorrectly determining object, spirit or purpose

The Minister’s Burden Under GAAR Daniel Sandler Faculty of Law The University of Western Ontario Minden Gross Grafstein & Greenstein LLP