GAAR at 25: Lessons Learned and Current Challenges

On September 26, 2013, the Canadian Tax Foundation hosted a seminar commemorating 25 years of GAAR. This seminar was marked by conflicting views on whether GAAR has evolved, and whether it has operated as an effective deterrent. The panellists agreed that applying GAAR involves an element of uncertainty and that taxpayers should plan accordingly.

The diverse group of panellists who participated in the seminar included Justice Sharlow of the FCA; Justice Boyle of the TCC; Phil Jolie, former Director General of the Rulings Division at the CRA; Patricia Lee of the Department of Justice; Shawn Porter, who was previously seconded to the Department of Finance and is currently at Deloitte LLP; and Ed Kroft of Blake Cassels & Graydon LLP.

Pooja Samtani of Osler Hoskin & Harcourt LLP and Justin Kutyan of KPMG Law LLP served as moderators.


At the outset, the moderators questioned the extent to which GAAR had evolved since its inception. Justice Sharlow observed that although the principles regarding purposive interpretation were first enunciated in Stubart Investments Ltd. v. The Queen ([1984] 1 SCR 536), the courts have only recently applied that approach to interpreting the Act in non-GAAR cases. The panellists generally agreed that in the future, the focus will be on applying the "misuse and abuse" analysis, although the burden on the Crown may evolve over time. Given the types of cases that are currently under appeal, there may also be a renewed focus on the "avoidance transaction" element of the test, which has otherwise not received as much attention.

An Effective Deterrent?

Although there was consensus that the courts have yet to formulate more specific principles regarding the application of GAAR, the panellists were split on whether GAAR has been effective. Phil Jolie observed that the CRA continues to see a significant number of strategies and transactions that he had expected GAAR to curtail. Patricia Lee noted that 44 GAAR cases are currently in the system (either at the appeals stage or before the TCC), addressing a host of issues that range from loss trading to cross-border surplus stripping. Ed Kroft disagreed with Phil Jolie, stating that GAAR has served as an important deterrent, particularly for taxpayers who fear reputational risk and for professional advisers who fear class action claims and the imposition of third-party civil penalties.


When reviewing the practical implications of GAAR, the panellists agreed that GAAR analysis is inherently uncertain. Justice Boyle confirmed that this uncertainty is unavoidable and constitutes the principal challenge for taxpayers who are confronted with GAAR assessments. Justice Sharlow similarly acknowledged that GAAR analysis is fact-driven, which contributes to the overall ambiguity surrounding the analysis. She noted, however, that despite any instinctive reactions that may be triggered by the factual context, judges consciously choose to be guided by the prescribed framework.

To deal with the uncertainty that appears to have become synonymous with GAAR, Justice Sharlow advised that practitioners proactively consider the prospect of GAAR litigation during the planning phase. Ed Kroft added that a taxpayer should make provision for GAAR disputes that may occur in the future by planning for the costs of litigation and preserving the requisite evidence. Shawn Porter recommended that parties keep an eye on legislative developments that may shape a future GAAR analysis, observing the difficulty that legislators face in drafting new provisions that must then work harmoniously with existing provisions.

The panel discussion made it clear that this is an exciting time for those entering the profession. GAAR, despite being old enough to have completed a professional degree, is still very much in its infancy.

Andrew Boyd
Fasken Martineau DuMoulin LLP, Toronto

Canadian Tax Focus
Volume 3, Number 4, November 2013
©2013, Canadian Tax Foundation