The eyes of Canada are on the Supreme Court when it heard Alta Energy on March 19. In its appeal, the Crown invoked the GAAR to challenge an alleged treaty shopping scheme. The hearing was livestreamed and you can find the archived webcast on the Court’s website. A review of the Federal Court of Appeal decision can be found on this blog, as well as an in-depth analysis by Professor Scott Wilkie.
What is equally exciting is Ontario’s 2021 Budget, just released on March 24. Although it only mentions the GAAR in its Annex, it signals something we can expect in Canada’s 2021 Budget, to be released on April 19.
In its Annex, Ontario’s 2021 Budget basically echoes what the federal government has said in its Fall Economic Statement 2020:
“As noted in the federal Fall Economic Statement 2020, tax avoidance transactions have grown increasingly complex. Sophisticated arrangements that seek to avoid or evade tax can undermine the public’s confidence in the tax system. Ontario is supportive of the federal government’s plan to consult on the modernization of Canada’s anti‐avoidance rules, in particular the General Anti‐Avoidance Rule (GAAR). As part of the consultation, Ontario encourages the federal government to consider ways to combat artificial income shifting, such as through the use of trusts or corporate continuances, that put provincial tax revenue at risk.”
Back in November, in its Fall Economic Statement 2020, the federal government uses one paragraph to address “modernizing anti-avoidance rules”:
“For too long, certain individuals and businesses have been able to create increasingly complex structures in order to artificially lower their tax obligations in a manner that does not serve an economic purpose, including by shifting profits offshore and creating artificial tax deductions. To address this, the government will launch consultations in the coming months on the modernization of Canada’s anti-avoidance rules, in particular the General Anti-Avoidance Rule. It is essential to the integrity of the tax system that our anti-avoidance rules be updated so they are sufficiently robust for tax authorities and courts to address this sophisticated and aggressive tax planning.”
What will Canada propose to modernize the GAAR? My previous post discussed the possibility of adopting the economic substance doctrine into the GAAR. We will find out more on April 19.
Stay tuned.