The General Anti-Avoidance Rule May Be Expanding: What You Need To Know

The General Anti-Avoidance Rule (GAAR) is a section of the Canadian Income Tax Act that gives the government broad powers to prevent transactions that it deems to be against the purposes of Canadian tax law. Recent legislative changes and court decisions have broadened the applicability of the GAAR. Taxpayers should seek appropriate professional advice about their tax planning strategies.

Context

On August 4, 2023, the Department of Finance released draft legislation that would expand and strengthen the GAAR. The GAAR, set out in s. 245 of the Income Tax Act (the Act), is intended to prevent Canadian taxpayers — whether individuals, trusts, or corporations — from receiving tax benefits from tax planning that runs contrary to the purpose of the Act or its provisions (so-called "abusive" tax planning).