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Published: April 10, 2020

Last Updated: October 21, 2022

Application of the General Anti Avoidance Rule (GAAR) involves three steps


The Supreme Court of Canada has released 2 cases dealing with the general anti-avoidance rule (GAAR) in the Canadian Income Tax Act, The Queen v Canada Trustco Mortgage Company and Kaulius et al v The Queen. It has ruled that the application of the GAAR involves three steps.

It must be determined:

  • whether there is a tax benefit arising from a transaction or series of transactions within the meaning of s. 245(1) and (2) of the Income Tax Act;
  • whether the transaction is an avoidance transaction under s.245(3), in the sense of not being “arranged primarily for bona fide purposes other than to obtain the tax benefit”;and
  • whether there was abusive tax avoidance under s.254(4), in the sense that it cannot be reasonably concluded that a tax benefit would be consistent with the object, spirit or purpose of the provisions relied upon by the taxpayer.

The burden is on the taxpayer to refute points (1) and (2), and on CRA to establish point (3). When undertaking tax planning transactions it is important to consult with a Toronto income tax lawyer to make sure that the GAAR rules are avoided.


"This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."

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