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.