ARTICLE · 23 MAY 2013

The Gwartz Decision: The GAAR Is Not A Filler

Dentons Canada LLP

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In a recent case the Crown attempted to utilize the GAAR to recharacterize as dividends certain capital gains which had been realized by a family trust and allocated to the minor-aged taxpayers in 2003, 2004 and 2005.

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In Brianne Gwartz v. The Queen, 2013 TCC 86, the Crown attempted to utilize the GAAR to recharacterize as dividends certain capital gains which had been realized by a family trust and allocated to the minor-aged taxpayers in 2003, 2004 and 2005. The Crown argued that the transactions giving rise to the GAAR circumvented section 120.4 (the "kiddie tax") which was amended in 2011 to apply to certain capital gains paid to minors.

The taxpayers conceded the existence of a "tax benefit" and an "avoidance transaction", leaving the only issue being whether there existed "abusive tax avoidance". The Tax Court of Canada made some interesting comments about the application of the GAAR generally and specifically as it related to this case, the main points of which can be summed up as follows:

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