Tax Court finds that GAAR did not apply to a surplus strip

McClarty, 2012 TCC 80, concerned transactions that had the effect of distributing assets of a family holding company to a family trust, and permitting that distribution to be realized by the trust as a capital gain rather than as a dividend - so that the property could then be distributed to the minor children without being subject to the "kiddie tax" under s. 120.4.  Angers, J. found that none of the transactions were avoidance transactions under the general anti-avoidance rule because they all  had a primary purpose of protecting assets from a potential suit.  Not surprisingly, Angers J also found that the  words "in any manner whatever" in s. 84(3) did not authorize CRA to treat preferred shares that in fact were redeemed in the hands of an affiliated corporation as if they had been redeemed in the hands of the family trust (which had owned those shares earlier in the series of transactions).

Scott Armstrong.  Summary under ITA  s. 245(3) and ITA s. 84(3).