Quinco Financial – Federal Court of Appeal confirms that interest is added as usual to a GAAR assessment – and that taxpayers do not “apply” GAAR

Webb JA rejected a submission that no interest accrued by virtue of a GAAR reassessment between the balance-due date of a taxation year for which a large capital-loss claim was denied, and the date of the reassessment almost four years later, stating:

[T]he requirement that the Minister in GAAR cases must establish that a tax benefit is not consistent with the object, spirit or purpose of the provisions relied upon by the taxpayer cannot justify a finding that any liability for any increased taxes would only arise once that reassessment is issued.

However, he also intimated that the Tax Court had gone overboard (in arriving at the same result) by stating “all taxpayers, who are directly subject to GAAR assessments, … are required to consider and apply GAAR” – which seemed to imply that the taxpayer rather than CRA is responsible under s. 245(2) for determining how the transactions’ tax consequences should be rejiggered to produce a reasonable result. (A similar statement was made in J.K. Read.) Webb JA stated:

[I]t is more accurate to state that all taxpayers who are contemplating a transaction or series of transactions that would result in a tax benefit should consider the risk that GAAR will apply to deny the tax benefit.

Neal Armstrong. Summaries of Quinco Financial Inc. v. Canada, 2018 FCA 137 under s. 161(1), s. 157(1)(b) and s. 245(2).