Supreme Court Of Canada Issues Much-anticipated Decision On GAAR

On Friday, May 26, 2023, the Supreme Court of Canada (SCC or the Supreme Court) dismissed the taxpayer's appeal in Deans Knight Income Corp. v Canada, 2023 SCC 16 (Deans Knight). This much-anticipated decision deals with the general anti-avoidance rule (GAAR) in section 245 of the Income Tax Act¹ (Act). The GAAR, where applicable, allows the Canada Revenue Agency (CRA) to redetermine the tax consequences of a transaction. For GAAR to apply, the taxpayer must have engaged in a transaction or series of transactions with the primary purpose of obtaining a tax benefit, in such a manner as to result in an abuse or misuse of one or more provisions of the Act. To date, relevant jurisprudence has established that a two-stage GAAR analysis be employed to determine whether a transaction is abusive. First, the court determines the object, spirit, and purpose of the relevant provisions of the Act. Second, the court decides whether a particular transaction has frustrated that