CRA Applying GAAR For Outside/inside ACB Misalignment On 55(3)(a) Transactions

In our last two blogs on subsection 55(2), we provided our reasons for disagreeing with to the CRA's position regarding the application of subsection 55(2) to a transaction completed solely for purpose of creditor-proofing and a case study of what we believe is an acceptable creditor-proofing transaction. In this blog, we will discuss another recent example of the CRA announcing its willingness to apply the GAAR to taxpayers relying on paragraph 55(3)(a) outside of a narrow scope of circumstances.

In recent CRA technical interpretations 2020-0860991C6 and 2020-0861031C6, the CRA raised the lack of "alignment" between outside and inside basis on a standard subsection 55(3) spin-out transaction as a GAAR-able issue. Such types of transactions are often referred to as "related party butterflies", and are often implemented for mundane reorganization and creditor-proofing purposes. While there may be some sound policy rationale why this misalignment between outside and