Subsection 245(3) will be amended so that a transaction will be an “avoidance transaction” if one of its main purposes is to obtain a tax benefit. Many more transactions will be avoidance transactions because tax considerations always play a major role in planning a transaction. The weight of the analysis will shift to whether a transaction constitutes an abuse, where the onus will now be on the taxpayer to show that it isn’t. Moreover, the GAAR will incorporate an economic substance test as set out in new subsections 245(4.1) and (4.2). Taxpayers will be required to engage economists as expert witnesses in court to address economic substance.
New subsection 245(5.1) will impose a penalty where the GAAR applies. The penalty will not apply if the transaction was disclosed under sections 237.3 or 237.4. New subsection 245(5.2) will also exempt a transaction from the penalty if the transaction was undertaken in reliance on case law or CRA pronouncements. Finance’s explanatory notes, however, state that
The “identical or almost identical” threshold is quite high and, as a result, using the same tax strategy or entering into a transaction that is merely similar would not be enough to qualify for the exclusion.
Roderick A McBey “Is The Duke Finally Dead? An Analysis of the August 4 GAAR Draft Legislation” Tax Topics 2689 (October 10, 2023)