Subsection 245(5) - Determination of tax consequences
Subsection 245(7) - Exception
Cases
J.K. Read Engineering Ltd. v. The Queen, 2014 DTC 1216 [at 3872], 2014 TCC 309
The taxpayers acknowledged that capital losses (purportedly generated under schemes similar to Global Equity, 1207192 and Triad Gestco) should be denied under GAAR, but argued (based on s. 245(7)) that as GAAR could not be applied without the intervention of the Minister, interest began to accrue only from the time of the GAAR assessments.
Hogan J found that in Copthorne, the taxpayer was liable for failure to withhold on a deemed dividend that arose because of GAAR already having applied to reduce the related shares' paid-up capital. The taxpayers' argument was contradicted by the "authoritative obiter" in S.T.B. that s. 245(7) applied to third parties only. Furthermore, after noting the references in s. 245(7) to tax consequences to a person "following" the application of s. 245 being determined by assessment, he stated (at para. 39) that the definitions of "following" in dictionaries "clearly indicate that the notice of assessment does not trigger the application of the GAAR , but is rather subsequent to it." He concluded (at para. 43):
I see nothing …to suggest that the application of the GAAR is suspended until an assessment is issued. On the contrary, subsection 245(2)…uses mandatory language to provide that the tax consequences of abusive avoidance transactions shall be recast to deny tax benefits that are not reasonable in the circumstances.
S.T.B. Holdings Ltd. v. The Queen, 2002 DTC 7450, 2002 FCA 386
The Court rejected a submission that s. 245(7) required that, in order for GAAR to be applied, the reassessment notice must state on its face that GAAR is being utilized and GAAR must be the primary assessing position. The Tax Court judge had correctly interpreted the word "following" to mean "after". S.245(7) referred to a prior GAAR application to a taxpayer resulting in a subsequent determination of the tax consequences for another, i.e., s. 245(7) was intended to apply only to third parties seeking a tax relief - a conclusion that was supported by the French version and the sandwiching of s. 245(7) between two subsections geared toward third-party adjustments.
See Also
Copthorne Holdings Ltd. v. The Queen, 2007 DTC 1230, 2007 TCC 481, aff'd 2011 SCC 63
The paid-up capital of the taxpayer was found to be higher than was appropriate in light of the object and spirit of the provisions of the Act with the result that redemption proceeds paid by it to a non-resident shareholder were successfully assessed under GAAR as being subject to Part XIII tax. In finding that the amount of the withholding tax was not subject to penalty under s. 227(8)(a), Campbell J. first noted that s. 227(8) established a strict liability rather than absolute liability penalty and further found (at para. 78) that as "there is nothing in the GAAR provisions that would allow a taxpayer to self assess on the basis that GAAR applies," a penalty should not be imposed as a consequence of the successful application of GAAR by the Minister.
Administrative Policy
GST/HST Memorandum 16-4 "Anti-avoidance Rules" 20 February 2015
12. …[T] he determination of the tax consequences to any person, resulting from the application of [ETA] section 274, will only be made through a notice of assessment, reassessment, or additional assessment. A person cannot use subsection 274(2) to revise their tax payable, or any other amount, without requesting an adjustment under the procedure outlined in subsection 274(6).