Canada: Possible changes to general anti-avoidance rule (GAAR), comments due 30 September 2022

Possible changes to the general anti-avoidance rule (GAAR) that will affect how the CRA and courts address potential aggressive tax planning

Comments due 30 September 2022

The Department of Finance in August 2022 issued a consultation paper that outlines possible changes to the general anti-avoidance rule (GAAR) that will affect how the Canada Revenue Agency (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.

Finance appears to be contemplating several changes that would broaden the potential application of the GAAR, but also solicits feedback on selected issues. In particular, Finance asks for feedback on 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).

Comments on potential changes outlined in the consultation are due 30 September 2022.

Read an August 2022 report [PDF 218 KB] prepared by the KPMG member firm in Canada


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