All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

The Canadian General Anti-Avoidance Rule – Statistics after 25 years


Recent statistics suggest that there is a reasonably high likelihood that the Canada Revenue Agency’s GAAR Committee will approve a proposal by Canadian tax auditors to apply the general anti-avoidance rule, but taxpayers can take some comfort from the fact that GAAR Committee approval is by no means guaranteed and it does not mean the tax authorities will succeed before the Canadian tax courts.

Canada’s general anti-avoidance rule (GAAR) in section 245 of the Canadian Income Tax Act (ITA) was enacted in September 1988. During the last 26 years, the Canada Revenue Agency (CRA) has sought to apply GAAR to many types of transactions including international transactions involving Canadian taxpayers and non-residents of Canada. Some recent CRA statistics as of September 2013 provide insights into the CRA’s assessing practices with respect to the GAAR. If anything, over the years, it appears that it has increasingly resorted to use of the GAAR as a primary or secondary assessing position to levy taxes and interest under the ITA.

Criteria for the application of the GAAR

For GAAR to apply, three statutory tests must be met:

  • There must be a tax benefit, as defined in the ITA, that results from a transaction or series of transactions;

  • The transaction or series of transactions cannot reasonably be considered to have been undertaken or arranged for bona fide purposes other than to obtain the tax benefit; and

  • The transaction must result, directly or indirectly:

        --in a misuse of the provisions of the ITA or other specified legislation; or

        --in an abuse of the provisions of the ITA or other specified legislation having regard to those provisions read as a whole.

GAAR Committee and GAAR Committee statistics as of September 2013

CRA audit proposals to assess or reassess a taxpayer based on the GAAR are referred to CRA’s GAAR Committee for review and comment. The Committee is comprised of representatives of the CRA, the Department of Finance and the Department of Justice.

As of September 2013, 1,163 matters had been referred to the GAAR Committee. It recommended the application of GAAR in 897 or 77% of the cases and declined to recommend its application in 266 or 23% of the cases.

Where the application of GAAR was recommended by the GAAR Committee, the GAAR was the primary assessing position in 44% of the cases and the secondary assessing position in 56% of the cases.

The GAAR Committee has recommended the application of GAAR in these types of transactions which have an international component:

  • cross-border tax-free returns of capital (that is, surplus strips);

  • transactions involving claims of foreign tax credits for Canadian tax purposes;

  • transactions involving offshore trusts;

  • offshore leasing transactions; and

  • offshore insurance.

It is the last transaction which caught the attention of the Auditor General of Canada in the Spring of 2014. The Auditor General consistently reviews the performance of the CRA. Chapter 3 of the Auditor General’s Report (2014 Spring Report of the Auditor General of Canada, Office of the Auditor General of Canada, commented on aggressive tax planning and noted the CRA’s use of the GAAR:

“3.26 The Agency completed an analysis of GAAR decisions made in 2012. According to that analysis, 80 cases thought to use any type of aggressive tax planning were referred to the GAAR Committee in 2012, and the GAAR was found to apply in 77 cases (96 percent of referrals). We asked for the GAAR Committee decisions and found that for the period under audit, 33 percent of GAAR decisions had not been documented. Therefore, we could not complete our analysis to confirm this result.

3.27 Based on the Agency’s data from the time the rule was introduced in 1988 to 12 September 2013, the GAAR Committee has determined that the GAAR applied in 897 out of 1,163 cases (77 percent of all cases referred). The main reason cited for denial of the GAAR was that the Committee determined that the case complied with the object and spirit of the Income Tax Act.

3.28 According to the Agency, since 1988, 54 GAAR cases have been litigated in the courts, and the Minister of National Revenue has been successful in 28 of those cases; that is the GAAR applied to the plans, and the tax benefits obtained were denied. Sometimes the Department of Finance waits to see if the courts will resolve an issue rather than recommending legislative change. Since the court process can be very lengthy, it often takes many years before an issue is resolved. In the meantime, the Agency has to find taxpayers who implement similar aggressive tax plans, reassess them, and await the courts’ decision. When the Agency loses a case, its Adverse Decision Committee meets to discuss next steps, including the possibility of requesting legislative change. The Agency regards a lost case as a learning experience, since it clarifies how the courts view GAAR application to a particular aggressive tax plan.”

Based on the GAAR Committee statistics in late 2013, there is a reasonably high likelihood that any proposal by Canadian tax auditors to apply GAAR will be approved by the GAAR Committee. However, taxpayers can take some comfort from the fact that GAAR Committee approval is by no means guaranteed or that the CRA position will succeed before the Canadian tax courts.

Ed Kroft, QC (; and

Deborah Toaze ( are partners of Blake, Cassels & Graydon, the principal Canadian correspondents for the tax disputes channel of


More from across our site

The Indian Union Budget made some significant changes that will affect taxpayers, as Ranjeet Mahtani, Saurabh Shah, and Meetika Baghel of Dhruva Advisors explain.
But experts cast doubt on HMRC's data and believe COVID-19 would have increased the revenue shortfall.
EY’s plan to separate its auditing and consulting businesses might lessen scrutiny from global regulators, but the brand identity could suffer, say sources.
Multinationals are asking world leaders to put a scale on carbon pricing to tackle climate change at the 48th G7 summit in Germany, from June 26 to 28.
The state secretary told the French press that the country continues to oppose pillar two’s global minimum tax rate following an Ecofin meeting last week.
This week the Biden administration has run into opposition over a proposal for a federal gas tax holiday, while the European Parliament has approved a plan for an EU carbon border mechanism.
Businesses need to improve on data management to ensure tax departments become much more integrated, according to Microsoft’s chief digital officer at a KPMG event.
Businesses must ensure any alternative benchmark rate is included in their TP studies and approved by tax authorities, as Libor for the US ends in exactly a year.
Tax directors warn that a lack of adequate planning for VAT rule changes could leave businesses exposed to regulatory errors and costly fines.
Tax professionals have urged suppliers of goods from Great Britain to Northern Ireland to pause any plans to restructure their supply chains following the NI Protocol Bill.
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree