Citation: 2018 TCC 152
ALTA ENERGY LUXEMBOURG S.A.RL.,
HER MAJESTY THE QUEEN,
REASONS FOR JUDGMENT
 The Appellant, a resident of Luxembourg, claimed an exemption from Canadian income tax under Article 13(5) of the Canada-Luxembourg Income Tax Convention 1999 (the “Treaty”) in respect of a large capital gain arising from the sale of shares (the “Shares”) of Alta Energy Partners Ltd. (“Alta Canada”), its wholly-owned Canadian subsidiary. At that time, Alta Canada carried on an unconventional shale oil business in the Duvernay shale oil formation (the “Duvernay Formation”) situated in Northern Alberta. Alta Canada was granted the right to explore, drill and extract hydrocarbons from an area of that formation (Alta Canada’s “Working Interest”) designated under licenses (the “Licenses”) granted by the government of Alberta.
 The Minister of National Revenue (the “Minister”) denied that the exemption applied and assessed the Appellant accordingly.
 Article 13(5) of the Treaty is a distributive rule of last application. It applies only in the case where the capital gain is not otherwise taxable under paragraphs (1) to (4) of Article 13 of the Treaty.
 Article 13(4) is relevant to the outcome of this appeal. Under that provision, Canada has preserved its right to tax capital gains arising from the disposition of shares where the shares derive their value principally from immovable property (“Immovable Property”) situated in Canada. However, the application of Article 13(4) is subject to an important exception. Property that would otherwise qualify as Immovable Property is deemed not to be such property in the circumstances where the business of the corporation is carried on in the property (the “Excluded Property” exception).
 The Appellant concedes that the Shares derived their value principally from Alta Canada’s Working Interest in the Duvernay Formation. The Appellant also concedes that the capital gain it realized will be taxable under Article 13(4) unless this Court agrees with the Appellant’s submission that its full Working Interest is Excluded Property.
 Unsurprisingly the Respondent defends the contrary view. According to the Respondent, substantially all of Alta Canada’s Working Interest remained Immovable Property because Alta Canada drilled in and extracted hydrocarbons from only a small area of the Duvernay Formation that it controlled.
 Alternatively, should this Court disagree with the Respondent on this point, the Respondent contends that the general anti-avoidance rule (the “GAAR”) provided for in section 245 of the Income Tax Act (the “ITA”) applies to deny the benefit of the exemption claimed by the Appellant. The parties agree that there is a “tax benefit” and an “avoidance transaction” for the purpose of the GAAR. They disagree, however, as to whether the “avoidance transaction” gave rise to an “abuse” or “misuse” which is required to trigger the application of the GAAR.
I. The Facts
 The parties filed a Statement of Agreed Facts which is appended to these reasons as “Appendix A”.
 Four witnesses testified for the Appellant and I found each to be credible and reliable. Joseph Greenberg, the CEO of Alta Resources USA, has a background in geology and in the interpretation of geological maps. He founded Alta Resources to carry out business in exploring and developing oil and gas reserves in North America by drilling wells and described in his testimony his methods for doing so. Chaim Miller, managing director in the finance group at Blackstone Capital Partners. has a background as a tax lawyer and described Blackstone’s investment structure and methods for raising capital, particularly in ways that benefitted its U.S. investors. Anthony Acconcia, partner and senior managing director at Blackstone Capital Partners, described the business of Blackstone in structuring investment funds and its involvement with Alta. Jenny McCarthy, the president and chief operating officer of Alta Resources USA, described the process of drilling horizontal and vertical wells.
 In the spring of 2011, Blackstone Group LP (“Blackstone Capital Partners”) and Alta Resources LLC (“Alta Resource USA”) (Alta Resource USA together with Blackstone Capital Partners is defined as the “Co-Investors”), shale oil and gas exploration and development firms, formed Alta Energy Partners LLC (“Alta US LCC”), a Delaware limited liability corporation, to acquire and develop unconventional oil and natural gas properties in North America (the “Initial Structure”).
 At that time, Blackstone Capital Partners was an affiliate of the Blackstone Group. Part of the partnership’s mission was to invest in unconventional oil and gas reserves alongside a co-investor who had a successful track record in the development of those types of reserves. As is typical of private equity funds, Blackstone Capital Partners raised equity by securing capital commitments from endowments, pension funds and insurance companies, funds of funds, high net worth individuals and a host of other institutional investors (the “Blackstone Capital Investors”).
 By the spring of 2011, Alta Resources USA, the chosen Co-Investor, was recognized as a leader in the development of shale oil and gas assets in the United States.
 Blackstone Capital Partners, Alta Resources LLC and Alta US LLC examined development properties, ultimately deciding to develop the Duvernay shale property in northwestern Alberta. On June 13th, 2011, they incorporated Alta Energy Partners Canada (“Alta Canada”), a wholly owned Canadian subsidiary of Alta US LLC to, as the Appellant submitted, carry on the Canadian business. From June 2011 to April 2012, Alta Canada assembled around 62,000 acres in the Duvernay shale.
 A certain number of Blackstone Capital Investors benefited from tax exempt status by virtue of their status as pension funds, endowments or charitable organizations. The evidence also shows that approximately 50% of Blackstone Capital Investors were US citizens or residents (the “US Investors”) and the other half were not (the “Foreign Investors”).
 Blackstone Capital was formed as a limited partnership to allow its investors to benefit from limited liability from a commercial standpoint. Equally important, Mr. Miller testified that this structure was used to allow the Blackstone Capital Investors to benefit from the conduit tax status of the partnership.
 Generally speaking, tax exempt investors prefer to invest in pooled investment structures that enjoy conduit status to avoid tax at the level of an entity that is not transparent.
 The limited partnership structure also affords tax advantages for taxable investors. The transparent nature of partnerships allows the possibility of matching gains with deductible losses. Mr. Miller testified that Blackstone typically uses limited partnerships to raise capital for new ventures to accommodate their investor’s preference in this regard.
 Blackstone Capital Partners typically sets up a fund vehicle in the form of a Delaware partnership which obtains capital commitments from limited partners across the world. Blackstone Capital Partners then investigates investment opportunities, sometimes setting up joint ventures with outside operators such as that with the Alta group. In doing so, it forms secondary partnerships or limited liability companies such as that with Alta US LLC. Such partnerships are advantageous to U.S. investors because of their pass-through status.
 The evidence shows that the decision to insert Alta LLC USA, as a holding company, to pool the investments of the Co-Investors, was a mistake. From a US tax perspective, Mr. Miller testified that the initial structure needed to be revised to mitigate US anti-deferral provisions (Subpart F). Absent the restructuring, partners of Alta Canada could have been subject to tax on their prorata share of certain categories of passive income. The error was attributable to the fact that the Co-investors in Alta LLC USA ultimately decided to acquire and develop resource properties situated in Canada and not the United States. Mr. Miller, who was responsible for establishing the investment structure, testifies that he would have established a foreign based holding corporation for the Co-Investors had he known that Co-Investors would be investing in assets outside the US. According to Mr. Miller, Blackstone typically used foreign holding corporations when investing in foreign jurisdictions.
 Blackstone Capital Partners, Alta Resources USA and Alta US LLC were advised that the total investment in Alta’s Canadian assets was expected to grow between $300 and $400 million in two years.
 In December 2011, a representative of Blackstone Capital Partners sent a letter to Luxembourg tax authorities seeking confirmation of the tax regime which would be applicable to the Appellant after the restructuring. The representative subsequently received a reply stating that the proposed restructuring was in compliance with tax legislation and administrative policies in Luxembourg.
 On April 19, 2012, the Appellant was incorporated under the laws of Luxembourg to hold participations in Luxembourg and foreign companies. It had as its sole shareholder, Alta Energy Canada Partnership, a partnership established under the laws of Alberta.
 On the same day, Alta US LLC transferred 56,345,864 common shares of Alta Canada to the Appellant.
 Additionally, on that day, the Appellant’s board of managers resolved to approve the Appellant’s purchase of Alta Canada’s shares from Alta US LLC.
 It is worth noting that Blackstone Capital Partners Investors incurred costs that could have been avoided if the Co-Investors had first firmed up their plans where to invest prior to establishing the initial holding corporation structure. First, the sale of the Shares from Alta USA to Alta Luxembourg gave rise to a taxable capital gain. Fortunately, for the Co-Investors, the CRA accepted that the fair market and the adjusted cost base of the Shares were equal at that time. If this had not been the case, US and Foreign Investors in Blackstone Capital Partners would have incurred Canadian tax in connection with that sale. The Co-Investors have also incurred, undoubtedly, significant legal costs in connection with the establishment of the revised structure.
 Alta Canada carried out the development of its Working Interest in the Duvernay Formation in Northern Alberta (the Kaybob area of Alberta). The oil and natural gas beneath the relevant land is owned by the Government of Alberta, which grants leases and licences giving exclusive rights to drill for and recover oil and natural gas. The parties provided, as an example of such a licence, a petroleum and natural gas licence (a “PNG licence”), but noted that such licences do not grant legal title to the surface of the land.
 In the Kaybob area, the initial term of the PNG licence was four years but could be extended by five years if validated by drilling a well or “grouping” the licence with another licence in the intermediate area on which a well had been drilled within the last month. Without validation, the licence expired at the end of the four year term, unless the holder proved that it was producing or capable of producing petroleum or natural gas.
 On June 1, 2011, Alta Canada acquired PNG licences covering 14,400 net acres (or 22.5 sections) in the Duvernay shale from Sphere Energy Corp. (“Sphere”) for $25 million plus a royalty of 5.25%. Under the agreement of sale, Alta Canada committed to drilling one vertical well within 12 months and one horizontal well within 18 months of closing.
 On January 9, 2012, Alta Canada acquired additional PNG licences and leases covering 36,160 net acres (or 56.5 net sections) in the Duvernay shale from TAQA North Ltd. (“TAQA”) for $141 million plus a royalty of 2%.
 On January 25, 2012, Alta Canada acquired all of the rights, title and interests in 4,411 net acres (or 59.5 sections) from Cequence Energy Ltd. (“Cequence”) for $13,231,620.
 Alta Canada acquired additional licences and leases from Husky Oil Operations Ltd., Crew Energy Inc., Yoho Resources Partnership, Shell Canada Energy, and directly from the Government of Alberta, bringing Alta Canada’s net acreage in the Duvernay shale to 67,891.
 Between 2012 and 2013, Alta Canada drilled six horizontal and vertical wells and was a non-operator in two additional wells.
A. Is the capital gain realized by the Appellant as a result of the sale of the shares taxable in Canada in view of Article 13(4) of the Treaty?
 Under the ITA, Canadian income tax is payable on the gains realized from the disposition of “taxable Canadian property” that is not “treaty protected property” as defined in the ITA.
 Generally speaking, a share of the capital stock of a corporation is “taxable Canadian property” if, at the time of its disposition, or the 60 months that ended prior to that time, more than 50% of the fair market value of the share was derived, inter alia, directly or indirectly from or any combination of: (i) “real or immovable property situated in Canada”, (ii) “Canadian resource properties”, (iii) “timber resource properties”, and (iv) options in respect of interests in any of the aforementioned properties.
 The Appellant concedes that the Shares are “taxable Canadian property” under the ITA because the Shares derived more than their 50% of their value from Alta Canada’s Working Interest which is a Canadian resource property. However, the Appellant contends that the Shares are “treaty protected property” under Article 13(5) of the Treaty.
 “Treaty protected property” is defined as follows:
[. . .] property on income or gain from the disposition of which by the taxpayer at that time would, because of a tax treaty with another country, be exempt from tax under Part I.
 As noted earlier, the Respondent asserts the opposite on the ground that Article 13(4) of the Treaty applies to tax the gain.
 These two provisions read as follows:
(4) Gains derived by a resident of a Contracting State from the alienation of:
(a) shares (other than shares listed on an approved stock exchange in the other Contracting State) forming part of a substantial interest in the capital stock of a company the value of which shares is derived principally from immovable property situated in that other State; or
. . .
may be taxed in that other State. For the purposes of this paragraph, the term “immovable property: does not include property (other than rental property) in which the business of the company, partnership, trust or estate was carried on; and a substantial interest exists when the resident and persons related thereto own 10 per cent or more of the shares of any class or the capital stock of a company.
(5) Gains from the alienation of any property, other than that referred to in paragraphs 1 to 4 shall be taxable only in the Contracting State of which the alienator is a resident.
 Article 13(1) and (5) sheds light on the purpose of Article 13(4). All of these provisions are distributive rules that define the circumstances in which each of the Contracting States can tax gains.
 Article 13(1) is a provision commonly found in most tax treaties. It provides that gains derived from the disposition of immovable property are subject to tax in the source state. Generally speaking, it is also accepted that the country of residence of a taxpayer should tax the gain arising from the sale of shares of a corporation, even when the shares derive their value from economic activities conducted in the other Contracting State. The latter state gives up its right to tax the capital gain as an incentive to promote capital inflows to fund business operations in that jurisdiction. Article 13(5) embodies this principle.
 Article 13(4) specifies that the sale of shares of a company or of an interest in a partnership, trust or estate the value of which is derived principally from immovable property will be liable to tax in the state where the immovable property is situated. The purpose of this rule is to prevent the non-taxation by the source state of capital gains which is derived principally from immovable property. Absent this rule, it would be possible for a company to conduct a share sale instead of an asset sale to avoid taxation in the source state. The carve-out excludes from the definition of immovable property properties in which the business is carried on. The carve-out is thus an exception to the principle that the source state has jurisdiction to tax gains arising directly or indirectly from the increase in value of immovable property. In this context, Article 13(4) reflects a compromise between the two Contracting States. A gain from a share sale is subject to tax by the jurisdiction real property only in the case where the shares derive their value principally from Immovable Property situated in that jurisdiction and such property is not Excluded Property.
 In a document dated January 31, 1991 (the “Position Paper”), a government official traces the dividing line between “Immovable Property” and “Excluded Property” as follows:
6. Immovable property (e.g. real estate) that is not used or held for use in the company’s business but is held as an investment for capital gain is not Excluded Property.
 In this light, the Excluded Property exception appears to have been intended, inter alia, to encourage investments by Luxembourg residents in Immovable Property acquired to be used in a company’s business.
 In the context of the sector resource property, the author of the Position Paper opines as follows:
We have received a number of requests recently for technical interpretations concerning what is meant by “property, other than rental property, in which the business of the company was carried on” in the context of resource industries.
[. . .]
3. Oil and gas reserves, mines and royalty interests are Excluded Property if the owner is actively engaged in the exploitation of natural resources and if such assets are actively exploited or kept for future exploitation by such owner, subject to the exception resulting to hydrocarbons in the Canada-United Kingdom Convention.
 The author of the Position Paper recognizes that two conditions must be satisfied for oil and gas reserves to qualify as Excluded Property. First, the corporation must be actively engaged in the exploration of the reserve. Secondly, the reserve must be actively exploited or kept for future exploitation by the owner.
 As demonstrated by the facts of this case, a working interest cannot be developed and fully exploited all at once. Initially, the reserve must be accurately delineated. The resource owner must then prove that the resource can be extracted at a reasonable cost, having regard to the projected future commodity price. The resource owner is unable to commence significant drilling and extraction operations until the economic value of the reserve has been established.
 Before that time, stakeholders are generally unwilling to fund those activities. Moreover, an owner of an oil and gas reserve cannot bring its reserves to the market until such time as a facility has been built to process the hydrocarbons that will be extracted from the formation and pipeline transportation capacity has been secured to bring the processed commodity to the market.
 It is common knowledge that the capacity of a processing plant and a pipeline is limited. These assets have a long useful life. Stakeholders will be unwilling to commit capital to build the infrastructure until they are ensured that there will be a steady supply of hydrocarbons to justify the significant capital costs of those assets. Mr. Greenberg testified that the resource owner must guarantee a steady supply of hydrocarbons that matches the capacity of the processing facility that will process the resource and the pipeline that will bring the product to the market.
 According to the Respondent, a working interest does not qualify as “Excluded Property” if the working interest has been set aside for future drilling or extraction activities. On this point, the Respondent submits that the phrase “property in which the business was carried on” means property in which the business of the corporation is located and carried on.
 Referring to the ordinary meaning of the word, the Respondent suggests that “in” refers to “a physical place.” The use of “in” instead of “by which”, “with which”, or “through which” further denotes that it is not enough for the property to be used in the business, but that the business must be carried on within the physical limits of the property. The carve-out will then be “limited to immovable property that was not only owned or used by the company, but was occupied by the business for its business operations or activities.”
 The test proposed by the Respondent does not work well for all of the types of “immovable property” that are included in these words. “Immovable Property”, as defined for the purpose of Article 13(4), includes rights granted under licenses issued by government bodies to exploit minerals and other natural resources in Canada (“Incorporeal Property”). Incorporeal Property doesn’t have physical substance. Incorporeal Property cannot be occupied. Only physical property is capable of being occupied according to the ordinary sense of that word.
 For this reason, the Respondent muses that perhaps it was not intended for Incorporeal Property to qualify as Excluded Property. This begs the question as to why this issue was not clearly addressed in Article 13(4) of the Treaty.
 The Respondent concludes on this point by speculating that “it is possible and reasonable to accept, for purposes of the exception described in Article 13(4) of the Treaty that business is carried on in a working interest where the company’s activities exercise the rights granted by the lease or license”.
 The Respondent then goes on to consider how the test that it proposes should be applied to the resource sector. The Respondent contends that the Excluded Property exception must be applied on a strict license by license basis because each license is a separate asset of the holder. From this perspective, the Appellant would have to demonstrate that it drilled on or extracted hydrocarbons from the section of the formation covered by a particular license. If it did, the license would qualify as Excluded Property. If it did not, it would not. This is a heavy burden to discharge because it does not account for the factors that cause resource corporation to approach the development of their reserves as a whole. As demonstrated by the facts of this case, resource corporations do not develop their reserves on a section by section basis.
 When questioned by me, the Respondent’s counsel insisted that the Respondent’s current position is not inconsistent with the opinion expressed in the Position Paper. I fail to see how that is the case. The author of the Position Paper opined that a working interest can be set aside for future development, provided the corporation otherwise carries on a resource business. Clearly this means that drilling and extraction activities do not have to be carried out on the sections of the formation that have been set aside for future development, a practice commonly followed in the resource sector. It is implicit in the Position Paper that a resource corporation can carry on qualifying activities elsewhere on the formation and qualify undeveloped sections as Excluded Property.
 It appears to me that the Canada Revenue Agency (“CRA”) is repudiating its early position without admitting that it is doing so. Taxpayers should be able to rely on stated positions that take into account how reserves are developed in Canada. In this regard, it is clear from the evidence that Alta Canada carried on the business of exploring for, developing and producing oil in respect of its Working Interest in the Duvernay Formation. I note that the Respondent appears to have conceded this fact by accepting that Alta Canada was a “principal-business corporation” within the meaning of subsection 66(15) of the ITA.
 Respectfully, I believe that the Respondent’s position reflects a lack of understanding of how resource assets are developed and exploited in Canada. Consider the example of a corporation that holds a timberland. In many cases, a forestry corporation holds “timber rights” under licenses or concessions granted by government bodies that allow the corporation to harvest the trees in the area designated by the license or concession. The timberland can be held through multiple licenses or concessions.
 A forestry company will not harvest the trees on a timberland all at once. Section of the timberland will be set aside to allow the trees to reach their full maturity. By leaving a part of the timberland untouched, the timberland owner prevents soil erosion and allows growth to take place in the area of the woodlot where trees have already been harvested. It is common knowledge that clear cutting is environmentally unsound. The uncut part of the timberland remains a valuable asset that can be used by the forestry company to finance its operations as a whole.
 If I apply the test propounded by the Appellant in the circumstances described above, the section of the timberland that has been set aside for future harvesting will not qualify as Excluded Property. In contrast, a timberland exploited on a clear cut basis will be Excluded Property. Under the Respondent’s approach sustainable development will be discouraged. That result is counterintuitive. I do not believe that the Excluded Property exception was intended to operate in that way.
 In the case of a conventional oil field, the resource owner extracts hydrocarbons by drilling a vertical well on a section of the formation where the owner expects oil to be found. If oil is found, it will quickly flow to the surface because of the intense pressure under which the hydrocarbons are found. Since the oil is often in a large pool a vertical well on a particular section often allows the operator to extract oil from many of the sections where no drilling takes place. Under the Respondent’s narrow test, only the section of the formation in which drilling takes place qualifies as Excluded Property.
 Mr. Greenburg confirmed in his testimony that shale oil deposits present greater development challenges than traditional oil fields. Hydrocarbons are found in pockets over a large area of the shale formation. Because of the geology of the formation, a sufficient number of licenses must be acquired to secure access to a large part of the formation to maximize the chances of economic success. The geology of the reserve must be properly delineated before drilling can commence. To be of economic interest to its stakeholders, the operator must also prove that it can extract the hydrocarbons from its working interest.
 Ms. McCarthy testified that she was authorized to spend $12 million on the first well that Alta Canada drilled. The cost of the first well exceeded her budget by approximately $8 million. This is not unusual. The operator must establish the best way to drill the well and stimulate the formation. Ms. McCarthy explained that in these circumstances the initial drilling is done on a trial and error basis. Once the best drilling methods are identified and documented, the same methods are used to drill wells elsewhere. In the case of the Duvernay Formation, this was possible because the geology of the formation was fairly consistent throughout. Hence, it was expected that future wells could be drilled at a lower cost. According to Ms. McCarthy, information gathered from operations carried out on the Formation was used to locate where the next well should be drilled. Likewise, drilling and stimulation techniques established to be effective elsewhere on the formation were redeployed on the next well.
 Mr. Greenburg referred to all of the above operations, as de-risking activities (“De-risking”). Activities carried out on one section of the formation enhance the value of the other sections of the formation. De-risking activities are carried out to determine the economic value of the formation as a whole, a necessary step before capital will be committed to the full development of the reserve. It is clear from Mr. Greenburg’s evidence that once Alta Canada determined that it could extract hydrocarbons on an economically viable basis, it was able to attract additional capital from the Co-Investors. In that sense, de-risking its Working Interest allowed Alta Canada to secure financing for its operations.
 The law is well settled: a “tax treaty or convention must be given a liberal interpretation with a view to implementing the true intention of the parties”. With this principle in mind, I am of the view that the Treaty negotiators intended for a resource property to qualify as Excluded Property when such property is developed in accordance with the industry’s best practises.
 The evidence shows that Alta Canada approached the development of its working interest on a systematic and commercially prudent basis. Alta Canada took the steps required to properly delineate the part of the formation that it controlled in order to plan how and when it would drill wells, extract hydrocarbons, and bring the hydrocarbons to the market. At each stage of development, Alta Canada used the best practices of the industry to develop its reserves. Alta Canada should not be penalized for having done so.
 The Respondent submits that the evidence shows that the Co-investors planned, from the outset, to dispose of their investment in Alta Canada after a short holding period of five years or less. It is unclear from the evidence that this was the case. In any event, I agree with the Appellant that the evidence shows that if a sale was to take place, it would occur through a sale of the shares of Alta Canada rather than a sale of assets by Alta Canada. The Revised structure was set up to achieve this outcome. The evidence also shows that Alta Canada was sold by the Appellant as a going concern. In this regard, Ms. Miller testified that she was required to provide services to Alta Canada after the sale to ensure a successful transition of the business to the new owner, Chevron.
 According to the evidence in this case, the initial stages of resource development present the greatest risk for investors. At that time, it is unknown whether the resource can be exploited on an economically viable basis. Ironically, under the Respondent’s approach a shareholder of a resource corporation would be denied the benefit of the Excluded Property exception at a time when the shareholder bears the greatest investment risk. In contrast, a shareholder would benefit from the exception when the shareholder’s investment risk has been significantly reduced as a result of the full exploitation of the resource property. Generally speaking, tax incentives, like the Excluded Property exception, are intended to promote risk taking rather than the opposite.
 Since the purpose of the carve-out is to attract foreign direct investments, it is reasonable to assume that the treaty negotiators wanted the exception to be granted in accordance with industry practices. They would not have intended that the exception only applies where the reserve is fully exploited on a strict license by license basis, because such a literal and formal interpretation would not have favoured foreign investment.
 For all of these reasons, I conclude that all of Alta Canada’s Working Interest in the Duvernay Formation is “Excluded Property”. Consequently the capital gain realized by the Appellant as a result of the disposition of the Shares is not taxable in view of Article 13(4) of the Treaty.
B. Does the GAAR Apply to Override the Application of the Luxembourg Treaty?
 The Appellant concedes that it derived a tax benefit from the restructuration of its activities (the “Restructuration”) from the US to Luxembourg. The Appellant also concedes that the restructuration was not arranged primarily for a bona fide purpose other than to obtain a tax benefit; the Restructuration thus qualified as an avoidance transaction. The only issue before the Court is, therefore, whether the avoidance transaction was abusive. To determine whether there was abuse, Courts have adopted a two-step approach.
 The first step involves identifying the object, spirit and purpose of the relevant rule. Statutory interpretation under GAAR differs from traditional word-based interpretation. Whereas, under the modern rule of statutory interpretation, the analysis seeks to determine what the meaning of a provision is, under the GAAR, statutory interpretation is used to determine the object, spirit or purpose of the provision. The object, spirit or purpose is the rationale underlying the provision. Transactions may be found abusive of a provision’s underlying rationale, even though they comply with the literal, contextual and purposive meaning of the words of the statute.
 The second step requires determining whether the avoidance transaction falls within, or frustrates, that rationale. In this regard, it is necessary to understand how the taxpayer relied on the statute and to identify the overall result of the avoidance transaction. Where the overall result defeats, circumvents or frustrates the rationale underlying one provision or more, the GAAR will apply.
 In support of its submission, the Minister enumerated a number of provisions of the ITA and of the Treaty. The Minister contends that the avoidance transaction resulted in an abuse of sections 38 and 39, subsections 2(3) and 248(1), and paragraph 115(1)(b) of the ITA; of Articles 1, 4, and 13 of the Treaty; and of the ITA and the Treaty read as a whole.
 I fail to see how the Restructuration constitutes an abuse of sections 38, 39 subsection 2(3) and paragraph 115(1)(b). All of those provisions address, inter alia, the taxation of a capital gain. It is clear that those provisions are not intended to operate in the case where a non-resident realizes a gain from the disposition of the “treaty protected property” as defined in subsection 248(1) of the ITA. I have concluded that the Shares are “treaty protected property”. Therefore, as asserted by the Appellant, the provisions of the ITA operated in the manner intended by Parliament. The remaining question is whether the Restructuration constitute an “abuse” or a “misuse” of the Treaty.
 According to the Respondent, the misuse or abuse results from the fact that the Appellant, although a resident of Luxembourg for the purposes of Article 4 of the Treaty, was created and became the owner of the Shares for no purpose other than avoiding Canadian income tax on the gain that it realized on the disposition of the Shares. The Respondent also states that the Appellant paid no tax in Luxembourg.
 The Respondent asserts that the rationale and purpose of the Treaty is to prevent or reduce double taxation on activities or transactions that potentially may be subject to tax in both Contracting States at the same time.
 A tax treaty is a multi-purpose legal instrument. The preamble of the Treaty states that the two governments desired “to conclude a Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital.” While indicative of the general purpose of the Treaty, this statement remains vague regarding the application of specific articles of the Treaty. Under the GAAR analysis, the Court must identify the rationale underlying Article 1, 4 and 13, not a vague policy supporting a general approach to the interpretation of the Treaty as a whole.
 As noted earlier, Article 13(4) allows the source State to tax a gain (1) when the shares formed a substantial interest in the capital stock of a company and (2) where the value of the shares is derived principally from immovable property situated in the source state that is not Excluded Property.
 The carve-out included at paragraph 13(4) must be understood in the context of the Treaty. Within the Treaty, Article 13(5) provides that gains from the alienation of any property will generally be taxed by the residence state, except where any of Articles 13(1)-(4) applies. Article 13(1) provides that gains derived from the alienation of immovable property will be taxed in the source state. Article 13(4) specifies that the sale of shares of a company, or of an interest in a partnership, trust or estate the value of which is derived principally from immovable property will be liable to tax in the state where the immovable property is situated. As noted earlier, absent this rule, tax could be avoided in the source state through a share sale rather than an asset sale. The carve-out excludes from the definition of immovable property properties in which the business is carried on. The carve-out is thus an exception to the principle that the source state will have jurisdiction to tax gains arising directly or indirectly from the increase in value of immovable property.
 For Article 13(4) and (5) to apply, the taxpayer must be a resident of the contracting state – in the present case, Luxembourg. To qualify as a resident of Luxembourg, the Appellant had to meet the requirements set out in Article 4 of the Treaty. Article 4 does not include a limitation rule that denies access to treaty benefits as is the case for many of the treaties that Canada has entered into.
 Article 13(4) needs also to be interpreted in the context of the ITA. As explained earlier, paragraph 115(1)(b) provides that a non-resident will not be liable to tax on the alienation of treaty-protected property. The Excluded Property exception is thus a limit to Canada’s power to tax capital gains pursuant to the ITA in the event there is a sufficient level of economic activity exercised in owning the Canadian immovable property.
 This contextual interpretation of the carve-out is coherent with the purposive analysis of Article 13(4). To this effect, it is important to consider the OECD Model Treaty and its commentaries, because the OECD model treaty often serves as a baseline in Canadian treaty negotiations. Other extrinsic materials may also be relevant.
 The OECD Model Treaty does not include a carve-out for immovable property in which the business of the company is carried on. Departure from the model tax treaty may be significant as it demonstrates the intent of one, or both, parties to diverge from the general approach. When there is no common agreement on a specific point at the start of the negotiations, a divergence may be the result of a bargain struck by the parties. In the instant case, it is apparent that the parties intended to depart from the model treaty. This departure involved carving out from the definition of immovable property properties where economic activities were carried on.
 Parties to a tax treaty are presumed to know the other country’s tax system when they negotiate a tax treaty; they are presumed to know the tax consequences of a tax treaty when they negotiate amendments to that treaty. The OECD commentaries highlight that some states – like Luxembourg – generally do not tax capital gains: OECD commentary on Article 13, 28.12. It is then the responsibility of the state that does tax capital gains to prevent a double exemption if it wishes to do so.
 When the Treaty was negotiated, the Canadian treaty negotiators were aware of the fact that Luxembourg allowed its resident to avoid Luxembourg income tax on gains arising from the sale of shares of foreign corporations in broad circumstances. In this light, if Canada wished to curtail the benefits of the Treaty to potential situations of double taxation, Canada could have insisted that the exemption provided for under Article 13(5) be made available only in the circumstance where the capital gain was otherwise taxable in Luxembourg. Canada and Luxembourg did not choose this option. It is certainly not the role of the Court to disturb their bargain in this regard.
 The Respondent then asserts that the Appellant should be denied the benefit of Article 13(5) because it was a conduit created solely for the purpose of passing on the tax benefit (e.g. exemption from Canadian capital tax) to its shareholders who were not entitled to claim the benefits of the Treaty in their own right.
 I am uncertain what the Respondent means when it uses the term “conduit” to describe the circumstances of the Appellant’s holding and disposition of the Shares and the distribution of the sales proceeds to the Appellant’s shareholders. A corporation is often referred to as a “conduit” when it holds property for a principal. In that case, the principal is the “beneficial owner” of the property’s legal title is in the name of the corporation which holds title as an agent or nominee for the principal.
 The Minister’s assessment was premised on the fact that a capital gain was realized by the Appellant. Therefore, it is clear that the Minister has accepted that the Appellant was the “beneficial owner” of the shares sold to Chevron. If not, and the Appellant was holding the shares as nominee or agent for someone else, then that person should have been assessed by the Minister.
 In this light, the Respondent’s argument that the Appellant was acting as a “conduit” appears to be inconsistent with the Minister’s acceptance of the Appellant as the “beneficial owner” of the Shares and the lawful recipient of the sale proceeds.
 The Respondent takes issue with the fact that the Appellant held the Shares for a short period of time, sold them when the Co-Investors wished to do so, and distributed the proceeds to its shareholders. I find nothing unusual with these transactions. Holding corporations are often established for a single purpose which includes the holding of shares of a single corporation. When that task comes to an end following the sale of the investment, the corporation is often wound up and the proceeds of sale are distributed to the shareholder. While a board of directors is independent from the corporation’s shareholders, directors are required to act in the best interests of the corporation’s shareholders. They do so by taking into account the purpose for which a holding corporation was created and the intent of the shareholders.
 There is nothing in the Treaty that suggests that a single purpose holding corporation, resident in Luxembourg, cannot avail itself of the benefits of the Treaty. There is also nothing in the Treaty that suggests that a holding corporation, resident in Luxembourg, should be denied the benefit of the Treaty because its shareholders are not themselves residents of Luxembourg.
 The Respondent argues that the overall result of the Restructuration amounted to “treaty shopping”, which constitutes an abuse of the Treaty. The phrase treaty shopping is not defined in any Canadian tax treaties or in the ITA. The OECD Glossary of Tax Terms defines “treaty shopping” as follows: “An analysis of tax treaty provisions to structure an international transaction or operation so as to take advantage of a particular tax treaty.”
 When the Treaty was negotiated, adopted and ratified by Canada and Luxembourg, the Model Convention included in Articles 10, 11 and 12 a very narrow anti-abuse or treaty shopping rule. That provision was based on the concept of beneficial ownership and applied only to certain types of income (dividends, rents and royalties) received by residents of the other Contracting State. The rule was ultimately incorporated in the Treaty. It has been found to be of very limited application.
 In the case of the Canada-United States Tax Convention, Canada was persuaded by the United States to adopt a comprehensive anti-treaty shopping rule, which is commonly found in many of the United States tax treaties. Generally speaking, that provision operated on a look through basis. In the case of private corporations, treaty benefits are denied if an insufficient number of shares are owned directly or indirectly by residents of the United States who are “qualifying persons” within the meaning of that treaty in their own right. This is a good example of how Canada and other countries impose, under some treaties, conditions other than mere residence to curtail treaty shopping.
 In the federal budget of 2013, the Department of Finance (“Finance”) announced that it was reconsidering Canada’s bilateral approach to treaty shopping. Later that year, the Department of Finance released a consultation paper designed to provoke feedback from taxpayers. In summary, the paper outlined two approaches: namely the continuation of the bilateral approach previously followed by Canada, and a new approach that would lead to the enactment of a domestic anti-treaty shopping rule that, potentially, would override all of Canada’s tax treaties (the “Domestic Approach”). Finance appeared to favour the latter approach, because Canada’s new policy to curb treaty shopping could be enacted more quickly.
 In the budget introduced in the spring 2014, following the consultation process, Finance announced that it would proceed unilaterally under the Domestic Approach.
 To this effect, Finance presented a broader measure to curb treaty shopping. The proposed rule would use a general approach focused on avoidance transactions, and to, “provide more certainty and predictability for the taxpayer” would contain “specific provisions setting out the ambit of its application” as follows:
Main purpose provision: subject to the relieving provision, a benefit would not be provided under a tax treaty to a person in respect of an amount of income, profit or gain (relevant treaty income) if it is reasonable to conclude that one of the main purposes for undertaking a transaction, or a transaction that is part of a series of transactions or events, that results in the benefit was for the person to obtain the benefit.
Conduit presumption: it would be presumed, in the absence of proof to the contrary, that one of the main purposes for undertaking a transaction that results in a benefit under a tax treaty (or that is part of a series of transactions or events that results in the benefit) was for a person to obtain the benefit if the relevant treaty income is primarily used to pay, distribute or otherwise transfer, directly or indirectly, at any time or in any form, an amount to another person or persons that would not have been entitled to an equivalent or more favourable benefit had the other person or persons received the relevant treaty income directly.
Safe harbour presumption: subject to the conduit presumption, it would be presumed, in the absence of proof to the contrary, that none of the main purposes for undertaking a transaction was for a person to obtain a benefit under a tax treaty in respect of relevant treaty income if:
the person (or a related person) carries on an active business (other than managing investments) in the state with which Canada has concluded the tax treaty and, where the relevant treaty income is derived from a related person in Canada, the active business is substantial compared to the activity carried on in Canada giving rise to the relevant treaty income;
the person is not controlled, directly or indirectly in any manner whatever, by another person or persons that would not have been entitled to an equivalent or more favourable benefit had the other person or persons received the relevant treaty income directly; or
the person is a corporation or a trust the shares or units of which are regularly traded on a recognized stock exchange.
Relieving provision: If the main purpose provision applies in respect of a benefit under a tax treaty, the benefit is to be provided, in whole or in part, to the extent that it is reasonable having regard to all the circumstances.
Even if a transaction results in a tax treaty benefit for a taxpayer, it does not necessarily follow that one of the main purposes for undertaking the transaction was to obtain the benefit. One of the objectives of tax treaties is to encourage trade and investment and, therefore, it is expected that tax treaty benefits will generally be a relevant consideration in the decision of a resident of a state with which Canada has a tax treaty to invest in Canada. The proposed rule would not apply in respect of an ordinary commercial transaction solely because obtaining a tax treaty benefit was one of the considerations for making an investment.
The rule, if adopted, could be included in the Income Tax Conventions Interpretation Act so that it would apply in respect of all of Canada’s tax treaties. The rule would apply to taxation years that commence after the enactment of the rule into Canadian law. The Government also requests comments as to whether transitional relief would be appropriate.
 It is apparent to me, that the Respondent seeks to achieve the same result in the instant case under the GAAR as that intended under the above captioned proposed rule. In my opinion, the Respondent is seeking to apply the GAAR in order to deal with what Finance now believes is unintended gap in the Treaty. In Garron Family Trust v The Queen, Justice Woods concluded that the GAAR could not be applied in this fashion, as follows:
The problem that I have with this argument is that, if accepted, it would result in a selective application of the Treaty to residents of Barbados, depending on criteria other than residence. It seems to me that this is contrary to the object and spirit of the Treaty, which is apparent in Article I and Article IV(1). Residents of Barbados, as defined for purposes of the Treaty, are entitled to the benefits of Article XIV(4) as long as they are not also residents of Canada.
 The Federal Court of Appeal, in the same case, added:
If the residence of the Trusts is to be determined on the basis of the residence of St. Michael Trust Corp. (which is the premise for the Crown’s argument based on the general anti-avoidance rule), then the Trusts have not avoided section 94. On the contrary, they have fallen squarely into it. The fact that the Trusts would also be entitled to a treaty exemption flows from the fact that in the Barbados Tax Treaty, Canada has agreed not to tax certain capital gains realized by a person who is a resident of Barbados. If the residence of the Trusts is Barbados for treaty purposes, the Trusts cannot misuse or abuse the Barbados Tax Treaty by claiming the exemption.
 The Minister argues that the Restructuration constitutes an abuse of Articles 1, 4 and 13, because, absent the Restructuration, the gain would have been taxable in Canada. I do not find this result contrary to the rationale underlying Articles 1, 4 and 13. The rationale underlying the carve-out is to exempt residents of Luxembourg from Canadian taxation where there is an investment in immovable property used in a business. The significant investments of the Appellant to de-risk the Duvernay shale constitute an investment in immovable property used in a business. Therefore, I conclude that the GAAR does not apply to preclude the Appellant from claiming the exemption provided for under Article 13(5) of the Treaty.
 For all of these reasons the appeal is allowed, and the matter is referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with these reasons. Costs are awarded to the Appellant.
Signed at Magog (Québec), this 22nd day of August 2018.
“Robert J. Hogan