THE GENERAL ANTI-AVOIDANCE command ...

THE GENERAL ANTI-AVOIDANCE command

Tax practitioners and their clients have begun to recognize and accept, albeit reluctantly, the relevance of the General Anti-Avoidance order (GAAR) when assessing the income tax results of transactions. A number of Tax Court decisions have already been reported and many more cases are before the court this year. This may be an appropriate time to review to what degree GAAR should be incorporated into tax planning and into the advice given to clients, and by what means it should be incorporated when filing the recurs that reflect those transactions.

For a time after the introduction of GAAR, tax practitioners would discuss its possible application to a particular situation with clients further then substantially discount the application of the provision for several reasons: uncertainty in interpreting the legislation, confusion above a number of the releases or pronouncements of income Canada (now CCRA), and the lack of court decisions where the application of GAAR was considered. As more interpretative discussion becomes available, and particularly, as more court cases are heard, it's possible that discounting the application of GAAR abroad of hand, without documented research, could be constru as imprudent, if not irresponsible. unruffled though the cases that have been heard according to the Tax Court could be revers in succession appeal, the published decisions should not be disregarded.

The decided cases display inconsistencies but also show the beginnings of guidelines that may ultimately be used by way of practitioners for the application or non-- application of GAAR.

The universal of "tax benefit" for the final causes of GAAR is extremely broad. If challenged, it's unlikely that a transaction or series of transactions will avoid GAAR simply because no tax benefit was derived. The CCRA will decide not to apply GAAR single if the transaction, the series of transactions, and each transaction within that series, are carried not at home primarily for bona fide plans other than to obtain the tax benefit, or if the transaction does not set forth an abuse or misuse of the statute's provisions.

In the cases of Husky Oil1 and Canadian Pacific2, the taxpayer's bona fide business plan for each transaction in a series of transactions was accepted; therefore, GAAR was not applicable. If a tax practitioner wants to claim the inapplicability of GAAR onward the basis of a bona fide business intent it's important that the view be documented at the time the transaction (or each transaction in a series) is set ined into, and that the documentation bring reproachs the thoughts and comments of family actively involved in the business. Provided that like documentation exists, it should be possible to argue that the transactions were under-taken or arranged primarily for bona fide final causes rather than to obtain tax benefits. The CCRA, and ultimately, the courts, may disagree with the original documentation, unless the very existence of the documentation should be sufficient to repel any charge of culpable demeanor

GAAR will apply where it may reasonably be considered that a transaction would deduction in a misuse of the provisions of the Income Tax Act (the Act) or in an abuse of the provision of the Act when read as a whole. For example, a transaction that could be regarded as dividend stripping has a significant chance of being challenged by way of the CCRA and risks an uncertain conclusion if taken to court. If there's not a bona fide business drift for the transaction other than to obtain tax benefits, the potential prospect should be made clear to the client. If the transaction cannot be distinguished from those of the cases that have been decided in favour of the bays you, as advisor, should question whether it is appropriate to participate in the transaction at all.

In certain cases, it may be difficult to close whether or not a misuse or abuse of the Act's provisions has occurr When in doubt, make abiding that reasonable documentation of your research and the ensuing conclusion is added to the file at the time you give the advice and prior to the date at which the transaction fall outs

GAAR AND THE of recent origin CIVIL PENALTIES

New civil penalties related to misrepresentation of a tax matter by way of a third party create novel concerns and challenges for tax practitioners. In general, the Institute's orders of professional conduct mandate a standard of performance for CAs that is far remov from any "culpable conduct" as defined in the statute. However, from time to time, a CA may be required to justify actions taken in connection with planning or compliance activities.

The authoritys that have been extensively discussed elsewhere apply to statements made after June 292000 Moreover, in a meeting with the ICABC Taxation Forum onward December 12,2000, CCRA representatives indicated that no penalties would be propos until guidelines are issued in an information circular. The rife target date for issuance of the circular is March 2001 Accordingly, we still have time to review in what way the potential imposition of the of recent origin penalties could influence the tax advice we give to clients.