Two Recent Tax Shelter Decisions Require Supreme Court Clarification

In 1995, the Department of Finance substantially amended the tax shelter rules under the Income Tax Act (Canada) (the Act). Until recently, they had not been considered by the Federal Court of Appeal.

The purpose of the amended tax shelter provisions, as stated in the Department of Finance’s explanatory notes accompanying the draft legislation, was to "improve the fairness of the tax system by preventing abuses through aggressive tax shelter promotions". From the date the amended legislation was introduced, there was concern that the broadly worded rules would catch more than the aggressive tax shelter promotions specifically targeted by the provisions, potentially subjecting bona fide commercial transactions to the harsh consequences of the tax shelter regime.