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ARTICLE · 01 SEPTEMBER 2023

Strengthening The General Anti-avoidance Rule: What Taxpayers Need To Know

On August 4, 2023, the Department of Finance released draft legislation containing the most substantial overhaul of the general anti-avoidance rule (the GAAR) since its inception.

CanadaTax

On August 4, 2023, the Department of Finance released draft legislation containing the most substantial overhaul of the general anti-avoidance rule (the GAAR) since its inception. The GAAR is aimed at thwarting abusive tax planning, particularly in cases where the technical requirements of the tax rules have been satisfied but the tax planning is contrary to the policy underlying the rules. The new proposals include:

  • New Preamble: The introduction of a new preamble, the purpose of which is to address interpretive issues and ensure that the GAAR applies in the intended manner, while not forming part of its analytical framework.
  • Avoidance Transaction: The GAAR applies only to transactions that meet the definition of an "avoidance transaction." The proposals significantly lower the threshold of this definition so that an "avoidance transaction" exists as long as "one of the main purposes" of a transaction is to obtain a tax benefit. Currently, an

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