| Highlights
GENERAL ANTI-AVOIDANCE RULE
The Supreme Court of Canada's Approach to the GAAR: a Tax-planning Perspective
Michele Gouw
The Supreme Court of Canada recently handed down its decisions in the companion cases of Canada Trustco Mortgage Co. v. Canada and Mathew v. Canada, in which it discussed the principles applicable under the general anti-avoidance rule set out in section 245 of the Income Tax Act. The Justices held that in interpreting a statute, a "textual, contextual and purposive" analysis must be applied "to find a meaning that is harmonious with the Act as a whole." They went on to set out a three-step framework for applying the general anti-avoidance rule. Significantly, the Court rejected the separate approach to assessing whether there had been a "misuse" of the provisions of the Income Tax Act or an "abuse of the Act as a whole," which had previously been adopted by the Federal Court of Appeal. Michele Gouw provides an overview of the two Supreme Court opinions and a discussion of their implications for tax planners. Specifically, the author considers the benefits of the new unified "misuse" or "abuse" analysis, the role economic substance will play in future GAAR decisions, the importance of carefully drafting documentation underlying a transaction in light of the decisions, and the doubtful future of transfers of losses between non-arm's length parties.
TAX COST BUMP
Another Bump on the Road – the Subclause 88(1)(c)(vi)(B)(III) Anomaly
Geoffrey S. Turner
Geoffrey Turner discusses a technical anomaly with subclause 88(1)(c)(vi)(B)(III) of the Income Tax Act under which certain pre-acquisition of control transactions can potentially taint the tax cost bump. In a friendly acquisition, the bidder may request that target implement asset "packaging" and other reorganizations in which target and its subsidiaries acquire property, as part of the series of transactions that includes the acquisition of control of target by bidder. However, due to the combined effect of subclause 88(1)(c)(vi)(B)(III) and the "specified shareholder" definition, each direct and indirect subsidiary of target could be considered a "prohibited person" for purposes of the bump rules where bidder shares are offered as consideration and target shareholders collectively acquire 10% or more of the outstanding bidder shares. As a result, the bidder's bump could be at risk if any of the property acquired by the target subsidiaries before the acquisition of control and as part of the series is "distributed property" or "substituted property." The author explains how the anomaly can arise, and illustrates the application of the relevant rules through several examples. The author then proposes an amendment to subclause 88(1)(c)(vi)(B)(III) that would resolve the anomaly and achieve the tax policy outcome that was originally intended.
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Board
Mark D. Brender
Editor-in-Chief
Osler, Hoskin & Harcourt LLP
Montreal
Serge Bilodeau
KPMG LLP
Montreal
Greg C. Boehmer
Ernst & Young LLP
Toronto
K.A. Siobhan Monaghan
Davies Ward Phillips & Vineberg LLP
Toronto
Gabrielle M.R. Richards
McCarthy Tétrault LLP
Toronto
Christopher J. Steeves
Fraser Milner Casgrain LLP
Toronto
Marc N. Ton-That
KPMG LLP
Toronto
David M. Williamson
PricewaterhouseCoopers LLP
Toronto |