Avoiding tax is okay, but know the boundaries
Under Canadian law, there is legal precedent for being allowed to order your financial affairs in such a way to minimize or even eliminate any taxes you would otherwise owe. However, the government passed a law, called the General Anti Avoidance Rule (GAAR), as an attempt to draw a line between use and abuse of the tax code for this purpose. The line is simple; if the Canada Revenue Agency wants to object to your tax return, and how you have structured your finances for tax purposes, the GAAR legislation permits the CRA to take you to court for a judge to examine the matter.
- One of the three conditions for the GAAR to apply is that there had to be a tax benefit. If you can demonstrate that you didn’t obtain any tax benefit, you could escape the GAAR.
- Second, the tax benefit you received had to result from a transaction, or series of transactions, where you were intending to avoid tax as a key motivator. If you can show another primary reason for the transaction(s), then GAAR might not apply.
- Third, the avoidance transaction had to be abusive.
“Make sure you’re aware of the three conditions for the GAAR to apply, to avoid a battle that you may have, at best, a 50/50 chance of winning.”