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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


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