Need for further examples
- In addition to the TFSA example provided by Finance, other examples of transactions without a high level of economic substance are loss consolidation transactions and post-mortem planning. There should be more specific and substantive examples provided on how the government believes that economic substance considerations should be integrated into the determination of whether the GAAR applies.
Comparison test in s. 245(4.1)(b)
- The test in s. 245(4.1)(b) - of comparing expected tax benefits and expected non-tax economic return - will be difficult to apply where the latter are difficult to quantify.
“Substantially all” test in s. 245(4.1)(c)
- The reference in s. 245(4.1)(a) to “all or substantially all” (a phrase generally interpreted by CRA to reference a 90% threshold) also may establish a quantitative test that is difficult to apply.
Effective date
- The GAAR proposals should apply prospectively so that they would not apply to a series of transactions that commenced before the effective date.
Circumstances where late disclosure or penalty waiver is appropriate
- Taxpayers who are assessed under s. 245 after the time has passed for reporting a transaction or series under proposed s. 237.3(12.1) - but there were intervening developments, such as cases or new published CRA positions, that changed the GAAR profile of the transaction or series - should be allowed to file a late disclosure or have the penalty waived as part of the s. 245 rules in appropriate circumstances.
- Furthermore, CRA should have the ability to waive penalties or accept a late disclosure in circumstances where this is fair and equitable.
Calculation of penalty amount
- Calculations of the penalty amount (referencing the amount of the tax benefit resulting directly or indirectly from the transaction or series) could be uncertain or harsh where multiple taxpayers are involved with different benefit amounts or where the series produced tax deferrals rather than absolute tax savings.
Without prejudice disclosures
- There should be a s. 245 rule stating that a disclosure filed under proposed s. 237.3(12.1) cannot be used as a factor in any way when determining whether GAAR applies.
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