24 October 1990 Ministerial Correspondence 58954 F - General Anti-avoidance Rule and IC 88-2

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

October 24, 1990

Dear Sirs:

Re:  Information Circular IC 88-2

This is in response to your letter of October 19, 1989 wherein you requested a technical interpretation with respect to the application of Section 245 of the Income Tax Act (the "Act") and the clarification of certain comments in Information Circular IC88-2. We apologize for the delay in our reply. In particular you asked the following:

(a)     To what sources will the Department look to discover Parliament's intention as to the consequences of specific provisions of the Act?

(b)     Would the acquisition of shares of a profitable corporation by a loss corporation be subject to subsection 245(2) of the Act? If not, what types of transactions would Revenue Canada consider to have been designed to circumvent the "stop-loss" rules and, therefore, subject to subsection 245(2)?

(c)     Is it the Department's position that a transaction specifically permitted by the Act (expressly or by implication) is within the object and spirit of the Act and therefore never subject to GAAR?

In reply to your enquiries we offer the following comments:

(a)     A determination of whether there has been a misuse of the provisions of the Act or an abuse, having regard to the provisions of the Act read as a whole must be made on the basis of the language of that provision, presumably giving its words their plain meaning read in the context of the Act as a whole. Assistance to the tax interpretation may come from such sources as the Department of Finance's explanatory notes to the legislation, Parliamentary debates, Interpretation Bulletins, Information Circular, etc.

(b)     As stated in Information Circular IC 88-2, if the transfer of any property or any other transaction is undertaken to avoid a specific rule within the Act, such a transaction would generally be considered a misuse of the provisions of the Act and therefore subject to section 245 of the Act.

(c)     Where a transaction is specifically permitted by an express provision of the Act, it is the Department's view that such a transaction, in and by itself, will not normally be considered a misuse or abuse of the provisions of the Act. Where, however, such a transaction is part of a series of transactions or events, the determination of whether it constitutes a misuse of the provisions of the Act or an abuse of the Act read as a whole can only be made following a review of all the circumstances of the particular situation.

As explained in paragraph 24 of Information Circular 70-6R, any written or verbal opinions are not rulings and are not binding, upon Revenue Canada in respect of any taxpayers.

Your truly,

for DirectorReorganizations and Non-Resident DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch