Just so this isn’t blank, until I get around to writing the complete history of GAAR, here is what I have sketched together so far. At least in Canada. Way back when, we all bought into the notion of the Duke of Westminster and one could arrange one’s affairs however you like to pay the least amount of tax. This was possibly born out of some “baby boomer me first” doctrine, but time and fiscal intolerance have eroded that right [and more recently the UK have demolished it]. By the time Canada was thinking of a GAAR, the New Zealanders and Aussie’s already had some form of GAAR, the American’s had the Economic Substance doctrine from the 1935 case Helvering and the British were duking it out [no pun intended; see Duke of Westminster v. Commissioners Of Inland Revenue, [1936] AC 1, [1935] All ER Rep 259, 51 TLR 467, 19 Tax Case 490 ] with their own cases. Canadians went merrily along for the ride, and despite calls for one, the Carter Commission seemed to discount the need for a GAAR, with the effect their recommended reforms would have and the fact that taxpayer’s and their advisors could work around any attempts to add additional hurdles. Then along came some taxpayers; Mara Properties and Stubart Investments, with forms of loss trading schemes, innocent by today’s standards, that seemed to irritate tax policy makers. Then there was a raft of creativity, with the Sky Trains and First Preferred Trust transactions in 1986, each of which was stopped dead in their tracks by press releases, and then that spawned some other attempts at anti-avoidance rules and by now a GAAR debate was raging and on, January 15, 1987, I recall rules to tighten loss trading were introduced; by press release if my memory serves me well. Incidentally, tax policy by press release looks a whole lot better than the uncertainty of the GAAR, but I am getting ahead of myself. Then April 13, 1988 the GAAR legislation was introduced in Canada with effect for transactions on or after Royal Assent (which came on September 13, 1988). At this stage the four horsemen of the GAARcopolypse (and they know who they are), went about trying to explain it and sell it to tax advisors. Some thought it was void for vagueness, others went back to completing tax returns and eventually found religion in tax accounting others simply retired from corporate life. Then there were some early GAAR cases, many of which were decided by Donald Bowman which were classic for collecting quotes from, then OSCF Holdings came along, lost badly or well depending on your perspective, it never made it to the Supreme Court, but the facts did get there ultimately in the form of Kaulius, and a GAAR was born. From there the Supreme Court heard Canada Trustco, then Lispson came out, which many think was wrongly decided, so Copthorne Holdings was decided to set the record straight. Then many years on, CRA tried to get leave for Veracity (they did not get leave; instead got costs), while the Federal Court of Appeal, grappled with the Birchcliff-hanger (initially deemed a nullity by FCA and sent back to square one and re-dismissed by the Tax Court in Round Two, only to finally be denied by the FCA on round 2 and denied leave to the SCC), Canada v. 594710 British Columbia Ltd. (allowed at Tax Court, but reversed by Judith Woods et al at the Federal Court of Appeal), Univar Holdco Canada ULC v. Canada (allowed at TCC but reversed at FCA) and Canada v. Oxford Properties Group Inc. (allowed at TCC but reversed at FCA). So the history continues to evolve (or shall I say; revolve). The decision in 594710, still did not consider whether there is a general policy against loss trading or gain trading, but I think it is clear, based on my algorithm below, “Thou Shalt Not Use Thy Neighbour’s Losses”. One day I will take more time to update and fill in a more detailed history as I learn or recall it. In the meantime, this is what I have learned so far as it relates to abusive tax avoidance. I am building out the stats contained at GAARMAGEDDON.COM in hopes that one day AI software will emerge that easily helps daily users predict the future of GAAR outcomes. Because “knowing the future, is the future”©.
- You might have abusive tax avoidance if your plan involves use of duplicated tax attributes.
- You might have abusive tax avoidance if your plan involves use of someone else’s tax attributes.
- You might have abusive tax avoidance if your plan involves use of imported tax attributes.
- You might have abusive tax avoidance if your plan involves use of manufactured tax attributes.
- You might have abusive tax avoidance if your plan requires facilitation by a third party to work.
- You might have abusive tax avoidance if your plan requires payments in gold bullion.
- You might have abusive tax avoidance if your plan involves tax money for nothing.
- You might have abusive tax avoidance if your plan sounds too good to be true.
To be continued…..
GAARMAGEDDON™