Following an announcement in the 2022 federal budget, Finance released a consultation paper on August 9, 2022 that outlines possible changes to broaden the General Anti-Avoidance Rule (GAAR) that will affect how the CRA and courts address potential aggressive tax planning in the future. In particular, Finance is asking for general comments on the current definitions of "tax benefit" under the GAAR, as well as for feedback on potential changes to address mixed-purpose transactions, to clarify the “object, spirit and purpose” of the tax rules for purposes of the GAAR, and to better account for the economic substance of transactions. Finance is also considering amendments to increase certain GAAR penalties. Stakeholders are invited to submit comments on potential changes outlined in the consultation paper by September 30, 2022.

In its consultation paper, Finance contemplates several changes that appear to broaden the potential application of the GAAR, but also includes several questions to solicit broader feedback on selected issues. In particular, Finance says it intends to include a new rule to assess whether transactions have economic substance, and the paper also outlines suggested changes that shift the onus to the taxpayer to prove that certain transactions at issue are consistent with the object, spirit and purpose of the relevant provisions (rather than requiring the CRA to establish misuse or abuse).

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