He Who Writes the Rules Will Win

The Department of Finance’s consultation paper in which it outlines various proposals to bolster the General Anti-avoidance Rule (“GAAR”) in section 245 against taxpayers is a major shift in the fundamental principles of Canadian tax law. The paper lists alternatives to existing tax law, all of which are intended to remedy the circumstances in which the Canada Revenue Agency (“CRA”) has lost in tax litigation. Finance wants to rewrite the rules to improve CRA’s performance in the courts.

The principal proposal would change the onus on proof in GAAR litigation in establishing whether a tax structure abuses the policies of the Income Tax Act. Under existing law, the Minister of National Revenue has the burden in GAAR cases to establish that the taxpayer’s business structures abuse the underlying policies of the Act. This is because the Minister possesses, and has access to, the public and confidential information in legislating particular provisions of the statute. This is the converse of the general rule in tax law that the Minister’s assumptions of fact are deemed to be correct unless the taxpayer overturns them (the “reverse onus rule”).

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