The Minister's Burden under GAAR
| Author | Daniel Sandler |
| Pages | 85-106 |
85
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The Minister’s Burden under GAAR
daniel s andler*
A. INTRODUCTION
e Supreme Court of Canada releas ed its long-awaited decisions in its
first two general anti-avoidance rule (GAAR) cases, e Queen v. Canada
Trustco Mortgage Company and Mathew v. e Queen,on October
. e results themselves were not sur prising to most tax pundits: both
appeals were dismi ssed. However, the guidelines th at the Supreme Court
laid down for interpreting the GA AR (indeed, for interpreting a ny provi-
sion of the Income Tax Act) have done little to clarif y when section will
apply. One thing the court did ma ke clear, though, is that it is not prepared
to entertain anot her GAAR case for some time. Indeed, t he Supreme Court
implies — and many commentators on these t wo cases agree — that even
* Faculty of Law, e Universit y of Western Ontario, London; senior res earch fellow,
Taxation Law and Policy Res earch Institute, Mona sh University, Melbourne; and
counsel to Couz in Taylor LLP, Toronto. is chapter is updated f rom Daniel Sandler,
“e Minist er’s Burden under GAAR” () : Can. Tax J. – a nd is reproduced
with the perm ission of the Canadia n Tax Foundation. I am indebted to Tim Ed gar and
David Duff for thei r comments.
e Queen v. Canad a Trustco Mortgage Company, [] CTC , DTC
[Canada Trustco].
Mathew v. e Queen, [] CTC , DTC [Mathew].
Section of the Income Tax Act, RSC , c. ( th Supp.), as amended (the Act). Un-
less otherwi se stated, statutor y references in this chapter are t o the Act.
86 Daniel Sandler
the Federal Court of App eal should be loath to interfere w ith Tax Court
decisions in GAA R cases. According to the cou rt: “Where the Tax Cour t
judge has proceede d on a proper constr uction of the prov isions of the In-
come Tax Act and on findings supported by the e vidence, appellate tribu-
nals should not interfere, absent a palpable a nd overriding error.”
Given the apparent consequence s of a loss at trial, the burdens of proof
(theoretical or prac tical) imposed on the ta xpayer and on the minis ter un-
der GAAR are particularly important. However, as elaborated later in this
chapter, there are also importa nt questions of law that a Tax Court judge
must answer when applying section , and the judge’s answers to these
questions must always be open to reconsideration by the Federal C ourt of
Appeal. An error of law need not be “palpable and overr iding” in order for
an appellate tribu nal to interfere with a lower cour t decision, and I cannot
imagine that the Supreme Cour t was suggesting otherwi se.
is chapter considers precisely what bu rden of proof the minister must
satisfy in order to subst antiate a reassessment under GA AR. As indicate d
by the Supreme Court in Canada Trustco, there are three requirements
that must be met for GAAR to apply:
() [that there is a] tax benefit resulting f rom a transaction or part of a ser-
ies of transac tions (s. () and ());
() that the trans action is an avoidan ce transaction in t he sense that it
cannot be said to have been reasonably undertaken or arranged pri-
marily for a bona fide pur pose other than to obtain a t ax benefit; and
() that there was abus ive tax avoidance in the s ense that it canno t be rea-
sonably concluded that a ta x benefit would be consistent with the ob-
ject, spirit or pur pose of the provisions relied upon by the t axpayer.
According to the court, “[t]he burden is on the tax payer to refute () and (),
and on the Minis ter to establish ().” While the min ister’s primary burden
is thus located in t he third requirement, the mini ster does have obligations
under the first and second requ irements to establish a prima facie case.
Canada Trustco, above note at para. ; se e also para. .
Ibid. at para. [emphasis in or iginal].
Ibid.
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