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

Canada: Canadian Supreme Court confirms GAAR test

On December 16, 2011, the Supreme Court of Canada released Copthorne Holdings Ltd. v. Canada (2011 SCC 63), its fourth decision on the general anti-avoidance rule (GAAR). The court unanimously dismissed the taxpayer's appeal, upholding the two lower courts.

Two Canadian corporations which had been parent-child were amalgamated horizontally as a result of two sets of transactions. First the parent sold the subsidiary corporation to its non-resident shareholder resulting in sibling corporations. This reorganisation was designed to allow the PUC of the shares of both corporations to be aggregated by amalgamation, and facilitated unrelated tax planning. Later, the corporations were amalgamated as Copthorne, which then paid a return of capital to the non-resident shareholder free of withholding tax using the PUC.

The minister applied the GAAR asserting that the PUC of the subsidiary's shares should have been cancelled on the amalgamation with its former parent. Copthorne was assessed for the resulting withholding tax.

The court held that the transactions were a single series, and that the sale of the subsidiary corporation was an avoidance transaction (a transaction within a single series that results in a tax benefit and is not undertaken primarily for non-tax purposes). The court determined that the subsequent amalgamation had been undertaken "in contemplation" of the earlier sale and thus met the extended statutory definition of a "series". The court concluded that it was the intention of parliament that "in contemplation" would also apply to past events.

On the final test, the court reaffirmed its earlier jurisprudence and the requirement for a "unified textual, contextual and purposive approach" to determine whether the transaction resulted in a misuse or abuse of the provisions of the tax statute. The allegedly abused provision is examined, with proximate and complementary provisions and extrinsic aids, to determine "what the provision was intended to do". Taking this approach, the court concluded that these transactions abused the PUC computation provision relating to amalgamations. In context, the purpose of this provision was to prevent the duplication of PUC on an amalgamation.

Edward Rowe ( and John May (

Blake, Cassels & Graydon

Tel: +1 416 863 2400 Fax: +1 416 863 2653


more across site & bottom lb ros

More from across our site

The UN may be set to assume a global role in tax policy that would rival the OECD, while automakers lobby the US to change its tax rules on Chinese materials.
Companies including Valentino and EveryMatrix say the early adoption of EU public CbCR rules could boost transparency of local and foreign MNEs, despite the short notice.
ITR invites tax firms, in-house teams, and tax professionals to make submissions for the 2023 ITR Tax Awards in Asia-Pacific, Europe Middle East & Africa, and the Americas.
Tax authorities and customs are failing multinationals by creating uncertainty with contradictory assessment and guidance, say in-house tax directors.
The CJEU said the General Court erred in law when it ruled that both companies benefitted from Italian state aid.
An OECD report reveals multinationals have continued to shift profits to low-tax jurisdictions, reinforcing the case for strong multilateral action in response.
The UK government announced plans to increase taxes on oil and gas profits, while the Irish government considers its next move on tax reform.
War and COVID have highlighted companies’ unpreparedness to deal with sudden geo-political changes, say TP specialists.
A source who has seen the draft law said it brings clarity on intangibles and other areas of TP including tax planning.
Tax consultants say companies must not ignore financial transactions in their TP policies as authorities, particularly in the UK, become more demanding.