Finance comments on the new GAAR rules

Points made by Trevor McGowan on the new GAAR rules included:

• The introduction of the economic substance rule in s. 245(4.1) was intended to counter what may be an existing default approach towards dealing with economic substance, arising from Canada Trustco, of considering that a lack of economic substance is generally irrelevant, unless the provisions otherwise indicates - so that economic substance now is relevant.
• The tests in s. 245(4.1)(a) to (c) need to be applied holistically to the transactions as a whole.
• Other than the change of indicating that economic substance has some relevance (which he would not want to portray as an inconsequential change) there is essentially no change to the GAAR analysis.
• He provided a detailed run-down of why the typical exchangeable share deal would satisfy the economic substance tests in s. s. 245(4.1).
• He did not state that there is no general due diligence defence (see Consolidated Canadian Contractors and progeny) to the new penalty (in addition to the narrow defence in s. 245(5.2)), even though invited to comment on this point.

Neal Armstrong. Summary of 26 November 2023 CTF Conference - "The Future of the GAAR" under s. 245(4.1).