J.K. Read Engineering – Tax Court of Canada implies that GAAR applies automatically rather than depending on exercise of CRA discretion

The taxpayers unsuccessfully argued that as they could not apply GAAR to themselves without CRA intervention, interest did not start accruing respecting denied capital losses until the CRA GAAR assessments. The taxpayers’ arguments were based on s. 245(7), which Hogan J stated had been found by "authoritative dicta" in S.T.B. to apply only to third-party assessments rather than of the primary taxpayers.

The taxpayers did not argue that the "reasonable" tax consequences under s. 245(2) to a tax avoider can only be determined in CRA’s discretion rather than being self-assessed by the taxpayers. Similarly, Hogan J paraphrased s. 245(2) as if it applied automatically rather than depending on an exercise of CRA discretion.  Does automatic application mean that the taxpayer is required to self-assess itself under GAAR in its return for a year in which it has engaged in tax avoidance?  Keeping in mind that the whole point of s. 245(2) is to depart from the specific provisions of the Act and to apply its broader policy, if the taxpayer is required to self-assess, what is it supposed to do other than to report on the basis of any bona fide view it has as to what is reasonable under the policy of the Act?

Neal Armstrong.  Summaries of J.K. Read Engineering Ltd. v. The Queen, 2014 TCC 309 under s. 245(7), General Concepts – Stare decisis and s. 161(1).