Tax Court Compels Disclosure In GAAR Case

A December ruling by the Tax Court of Canada in Birchcliff Energy Ltd. v. The Queen, 2012-1087(IT)G, sets an important precedent that compels Canadian tax authorities to provide greater disclosure in the pleadings they file when litigating a case under the general anti-avoidance rule in section 245 of the Income Tax Act.

Under the GAAR, the minister of national revenue has the power to override the normal operation of the ITA and redetermine the tax consequences of transactions that are found to abuse or misuse one or more provisions of the ITA or other relevant enactments, or the enactments as a whole. This extraordinary power is to be exercised only if the revenue minister proves the existence of a tax policy containing such provisions and establishes that the policy was abused.