Pooja Mihailovich
Sep 12, 2023
Despite the federal government rolling back some elements of its proposed amendments to the general anti-avoidance rule (GAAR), many tax lawyers are concerned that the changes could constitute overreach.
“The revised draft amendments released in August do not adopt some of the more egregious measures that were initially under consideration, but they still risk creating uncertainty for taxpayers and undermining the continued efforts of the courts to ensure that the application of the GAAR remains rigorous,” Pooja Mihailovich, a partner in Osler’s National Tax Group, tells Advisor’s Edge.
Those August amendments include a proposal to lower the threshold for an avoidance transaction to one where obtaining a tax benefit is “one of the main purposes”, not just the primary purpose, and a rebuttable presumption of abuse or misuse for transactions “significantly lacking in economic substance.”
The latter requirement, Pooja says, has already been a consideration for the courts for the 35 years the GAAR has existed.
“Considering whether transactions have economic substance as a freestanding requirement and in isolation from the specific provisions at issue risks compounding the uncertainties already associated with the GAAR.”
But perhaps the biggest changes would be an extended statutory limitation period for assessment or reassessment and a penalty of 25% of the additional tax owing on transactions determined to be subject to the GAAR, minus the amount of a “gross negligence” penalty. The new penalty won’t apply in cases that are “identical or almost identical” to earlier transactions where case law or government guidance indicated that the GAAR would not apply.
These penalty proposals would represent a “significant shift” in how the GAAR operates, Pooja says.
“It was previously well-understood that the GAAR is not a penal provision, and that taxpayers cannot self-assess under the GAAR.”
If the proposals as written become law, she suggests, “taxpayers may effectively be coerced into reporting legitimate transactions that they have prudently determined not to be abusive, for fear of being subject to the penalty or extended limitation period.”
Read the full article, “Updated tax-avoidance proposals include new penalty,” on the Advisor’s Edge website.