Triad Gestco - Federal Court of Appeal uses GAAR (and Ramsay) to reinvigorate the economic substance doctrine

In Shell, the Supreme Court indicated that "the economic realities of a situation [cannot] be used to recharacterize a taxpayer's bona fide legal relationships."  Its Canada Trustco decision on the general anti-avoidance rule dealt with circular transactions under which: the American owner of trailers retained the economic incidents of their ownership; but through lease defeasance and prepayment techniques, the Canadian taxpayer was able to legally acquire the trailers without injecting significant net equity or taking on any real risk.  The Court found that these economic realities did not prevent the taxpayer from claiming capital cost allowance on the trailers.

In Triad Gestco, the Federal Court of Appeal applied the Ramsay principle - that the capital gains system is intended to allow relief only for real economic losses and not "paper" losses -  to deny the recognition of a capital loss by a taxpayer which had not suffered any economic loss.  Accordingly, the transactions' "economic realities" informed their GAAR characterization.

Neal Armstrong.  Summary of Triad Gestco Ltd. v. The Queen, 2012 FCA 258 under s. 245(4).