In Pomerleau c R, 2016 CCI 228, the Tax Court applied GAAR to a series of transactions that used the stop loss rule in 40(3.6) to create basis not caught by the PUC grind in 84.1, which in turn allowed the taxpayer to extract corporate surplus tax-free.
In “GAAR: Abuse of Section 84.1” Tax for the Owner-Manager 17:1 (January 2017), Eric Hamelin writes:
In Gwartz, the TCC refused to apply GAAR to transactions designed to distribute corporate surplus as capital gains, thereby circumventing the limitations of the kiddie tax provisions in section 120.4. However, the TCC may apply GAAR in an appropriate case to avoid an abuse of section 84.1, as it did in this decision and in Descarries, a similar case in which the CGD was indirectly used to shelter surplus distributions. If one adds to this approach the de facto arm’s-length relationship established (within the meaning of section 84.1) in Poulin v. The Queen (2016 TCC 154, under appeal) and the application of subsection 84(2) by the FCA to a surplus distribution in MacDonald (2013 FCA 110), there is good reason to act cautiously when a shareholder purports to receive distributions of corporate surplus on a tax-free basis.
