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Canada
stands at the forefront of tax avoidance law in Canada. 65 The GAAR draws a line between
legislative compliance that achieves legitimate tax minimisation and a level of compliance
that frustrates the rationale of the provisions relied upon. The latter constitutes abusive
tax avoidance. 66
Under the GAAR, the taxpayer has the burden of demonstrating that its activities
did not give rise to the particular tax benefit identified by the CRA, or that it engaged in
those activities primarily for bona fide non-tax reasons. If the taxpayer fails to establish
either point, the tax authority has the burden of demonstrating that the resulting tax
benefit is inconsistent with the object, spirit or purpose of the provisions that give rise to
that benefit. It is this ‘abuse analysis’ that forms the crux of the GAAR test. Where the
tax authority succeeds in establishing an abuse of the statutory provisions, the GAAR
operates to deny the benefit in question. Conceptually, the GAAR will apply only where
the abusive nature of a transaction or series of transactions is clear; where the existence
of abusive tax avoidance is unclear, the taxpayer receives the benefit of the doubt. This
structure preserves consistency, predictability and fairness, and reflects the longstanding
principle that taxpayers have the right to arrange their affairs so as to attract the least
amount of tax. 67
IX
DOUBLE TAXATION TREATIES
Canada has one of the world’s most robust bilateral tax treaty networks, comprising
approximately 90 double taxation conventions that are currently in force. 68 Having been
considered in numerous court cases, it is now well established that Canadian tax treaties
are to be read in good faith, with a view to giving their text meaning based upon the
language used and the intentions of the parties. 69 Implementing statutes often make clear
that a particular treaty takes precedence over domestic laws, 70 and judicial precedent,
official commentaries and other extrinsic evidence of the parties’ intentions further assist
in the interpretive exercise. Although most tax treaties are entered into and made law by
the federal government, provincial tax authorities will normally follow the CRA in giving
effect to such treaties by mirroring the resulting federal tax assessments.
It is also notable that the GAAR applies to the provisions of Canadian tax
treaties. 71 The CRA has advanced GAAR arguments in a number of treaty-related
disputes, including ‘treaty-shopping’ cases where taxpayers structure their affairs in an
attempt to use a particular treaty to obtain benefits not available under the domestic laws
65 See, e.g., s. 245.
66 See generally Canada Trustco Mortgage Co v. Canada, 2005 SCC 54, [2005] 2 S.C.R. 601.
67 Commissioners of Inland Revenue v. Duke of Westminster, [1936] A.C. 1 (House of Lords).
68 Canada uses the OECD Model Double Taxation Convention on Income and Capital as the
basis for its tax treaties.
69 See, e.g., Crown Forest Industries Ltd v. Canada, [1995] 2 S.C.R. 802.
70 See, e.g., Canada–United States Tax Convention Act, 1984, S.C. 1984, c. 20, s. 3(2).
71 See, e.g., s. 245(4)(a)(iv).
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