Overview
The general anti-avoidance rule, or the “GAAR”, is a cult favourite provision among tax professionals. It’s certainly one of my favourites. Introduced in 1988 the GAAR provides legislative authority to CRA to reassess for tax planning that meets the letter of the law but abuses its purpose. So a transaction can be structured in a way that seemingly follows the requirements of tax legislation as written but still be reassessed on the basis that it is abusive to the spirit of the law. Determining the purpose of tax legislation and whether transactions abuse said purpose is deceivingly complex. So much so that there are pages and pages of commentary and case law seeking to dissect the purpose of certain provisions and their proper interpretation for the application of the GAAR. For this reason CRA has in place quite a few resources devoted to interpreting and administering the GAAR. One of these is the GAAR Committee.
The GAAR Committee was established by CRA as an advisory body. Its purpose is to ensure the appropriate and equitable use of the GAAR and its consistent application across Canada. The committee includes representatives from various departments within CRA as well as from the Department of Justice and the Department of Finance. If an auditor seeks to apply GAAR as a primary assessing position on a file where GAAR has not been raised before, the auditor will need to present their case to the GAAR Committee for approval. Taxpayers are not allowed to attend.
The committee itself, and accessibility to it have always been a source of intrigue and debate among taxpayers and tax professionals. A myriad of cases deal with whether and to what extent GAAR Committee materials should be discoverable in the course of litigation. Further, taxpayers who are subject to a potential reassessment under GAAR often argue that they should have the opportunity to be present at the committee meeting discussing their case to fully understand the government’s position and present their points of view.
CRA documents have published serious concerns from taxpayers over the stature and influence of the Committee, calling its deliberations secretive and criticizing its unwillingness to hear directly from taxpayers. CRA typically answers these concerns by reiterating the committee’s purpose and emphasizing that the committee is meant to be a check on CRA to limit the application of the GAAR and promote fairness in its application for taxpayers.
Having been exposed to the GAAR committee both as a member of CRA sitting in and as a tax professional making representations, I can say both that CRA is being earnest in its position on the committee and that if taxpayers or their representatives were able to sit in on committee meetings it would be more destructive than productive to the administration of the GAAR.
The Agency has many interests in conducting GAAR Committee meetings. Some key examples that come to mind are the following:
- Proceeding with a GAAR reassessment often require a lot of resources from CRA and the Department of Justice and should be balanced against other CRA projects and the likelihood of success. This is one of the reasons that it is helpful to have the Department of Justice at the table providing insights and recommendations.
- Sometimes the legislation that has been allegedly abused requires change. This change could be in conjunction with or instead of the application of the GAAR. The Department of Finance can help advise on this point.
- Collaboration within the Agency and by the Agency with other key government stakeholders as promoted through open dialogue of a committee meeting.
In contrast, a taxpayer’s interest in being present at a GAAR committee meeting would likely be quite singular – not to pay extra tax.
Having all of these departments collaborate on the application of the GAAR provides an excellent forum for evaluating the appropriate application of the GAAR in an efficient manner. It’s one of the best CRA initiatives I know of. Allowing taxpayers or their representatives to attend would change this effective collaboration into an adversarial process. It would quash many of the benefits and lead to a lengthier, less efficient process less focused on the best application of the GAAR in Canada and more focused on each taxpayer’s individual interests.
Further, taxpayers already get to make representations - any submissions received from the taxpayers are forwarded to Headquarters and provided to the committee for the meeting.
Having sat in on committee meetings, been part of the drafting of submissions to the committee, reviewed countless GAAR committee decisions and had the opportunity to discuss these decisions with various parties involved I can state that the GAAR committee is true to its purpose of seeking to make the application of the GAAR fair and consistent across our country. While CRA may have room for improvement in many areas, this is one thing at CRA that I would say should not be tampered with to allow for taxpayer participation.