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Spotlight on statutory interpretation and tax avoidance: Three key decisions in 2021

Author(s): Pooja Mihailovich, Mary Paterson

Dec 13, 2021

In 2021, the Supreme Court of Canada (SCC) heard two cases involving the permissible limits of international tax planning, giving the Court the opportunity to clarify the process of statutory interpretation in the tax context. The exercise of interpreting a tax provision involves examining three interrelated factors: the text of the provision; the context in which the text appears; and the purpose of the statutory scheme in which the provision is found. Canadian courts have repeatedly referred to this exercise as a “textual, contextual and purposive” analysis. The way in which this analysis is conducted is of particular interest in cases involving allegations of tax avoidance.

The first of the two cases decided by the SCC, Canada v. Alta Energy Luxembourg SARL, considered the application of the general anti-avoidance rule (GAAR) to provisions of an income tax convention. The Court released its decision in this case on November 26, 2021. The second case, Canada v. Loblaw Financial Holdings Inc., considered the interpretation of a specific provision in the foreign accrual property income (FAPI) rules in the Income Tax Act (the Tax Act) and the decision was released on December 3, 2021. The Court may also hear a third case in 2022 involving the application of the GAAR to tax planning undertaken in the domestic context...