In a new webpage, CRA provides examples of where it will apply GAAR

In a new webpage on GAAR, CRA has provided examples (briefly summarized below) of where, in its view, GAAR would apply:

PUC averaging

Subco transfers a property to its parent (Holdco) in consideration for Class B shares of Holdco with the result that, through PUC averaging, there is a substantial increase in the PUC of the Class B shares of Holdco held by an individual.

Use of s. 40(3.6) and soft ACB to increase PUC

Canco redeems the preferred shares of an individual (which had an ACB of $850,000 due to a previous capital gains crystallization transaction), triggering a deemed dividend of $849,999 and an equivalent capital loss which, pursuant to s. 40(3.6), increases the ACB of the individual’s common shares of Holdco to their FMV of $850,000.

The individual’s common shares are transferred to Holdco in consideration for preferred shares with an ACB, PUC and redemption value of $850,000, and for nominal value common shares. Holdco redeems the preferred shares without any tax consequences.

Copthorne-style transaction

Foreign Parent holds all the common shares of Canco with an FMV of $200 million and an ACB and PUC of $100 million, and Canco wholly owns Subco whose common shares have an FMV and ACB of $2 million and $40 million. Canco sells Subco to a foreign subsidiary of Parent for $2 million, and Canco and Subco then amalgamate, so that the PUC of the Amalco shares is $140 million.

Value-shift transaction (Triad Gestco)

Canco pays a dividend on its common shares held by an individual through the issuance of high-low preferred shares, and the individual’s common shares are sold to a non-affiliated person for a nominal amount, resulting in a capital loss.

S. 104(5.8) avoidance through s. 107(2) distribution to Canco held by new trust

Canco, which is wholly owned by a newly established discretionary resident trust (New Trust), will be a beneficiary of Old Trust, which is approaching its 21^st anniversary. Old Trust distributes its property with an unrealized gain to Canco under s. 107(2).

S. 104(5.8) avoidance through s. 107(2) distribution to Canco held by NR beneficiaries

Canco, which is wholly owned by the non-resident beneficiaries of Old Trust, will be a beneficiary of Old Trust. Old Trust will distributes its property to Canco on a tax-deferred basis.

Neal Armstrong. Summary of CRA Webpage, General anti-avoidance rule (GAAR), 20 December 2024 under s. 245(4).