MacKay: A Potential Threat To The Duke

On March 19, 2008, the Federal Court of Appeal (the "FCA") rendered its decision in the MacKay appeal,¹ reversing the judgment of the Tax Court of Canada (the "TCC") which had found that the GAAR² did not apply as none of the transactions at issue constituted an avoidance transaction under paragraph 245(3)(b) of the Income Tax Act (the "Act").

In general terms, the TCC had suggested that in analyzing the primary purpose of each transaction within a series under paragraph 245(3)(b) of the Act, the Court should not merely consider in isolation the direct purpose of each such transaction. Instead, the TCC posited that the primary purpose of the series of transactions, as a whole, should also be a relevant, though not necessarily determinative factor in determining whether each particular transaction constitutes an avoidance transaction.