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Tuesday's Tax Tidbits- Latest Income Tax Info (New money saving Income tax tips every Tuesday) - July 27, 2010

General Anti-Avoidance Rule (GAAR)

The Federal Court of Appeal has unanimously reversed the Tax Court of Canada decision in Lehigh Cement Limited (2010 FCA 124). The FCA stressed that the burden of proof is on the Canada Revenue Agency (CRA) to establish the exemption's purpose and to establish that allowing the exemption to the taxpayer would be a misuse of that provision because it would achieve an outcome that the provision is intended to prevent or is not intended to permit. The Appeal Court noted that the taxpayer was entitled to the benefit of any doubt as to whether the transaction resulted in a misuse of the particular provision. The court concluded that the CRA cannot discharge its burden merely by asserting that the transaction was not foreseen or that it exploited a previously unnoticed legislative gap: the CRA must establish through evidence and reasoned argument that the impugned transaction's result was inconsistent with the exemption's purpose.

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