DAVID WILKENFELD, CPA, CA, canadian tax CONSULTANT

Posts Tagged ‘Tax Avoidance’

Frightening GAAR Facts

In Canadian Income Tax, Tax Avoidance on November 25, 2010 at 1:15 pm

One of my favourite scenes in one of my favourite movies, The Sting, has Robert Redford, a young and enthusiastic grifter, meeting Paul Newman, an older and wiser grifter. Redford is soliciting Newman’s help to exact revenge on mob boss Robert Shaw, who killed his friend. Sensing Newman’s hesitation, Redford challenges Newman:

Redford: You’re scared, aren’t you?

Newman: You’re damn right I’m scared. You’re talking about a guy who would kill a grifter over an amount of money that wouldn’t support him for a week.

When the General Anti-Avoidance Rule was first introduced some 22 years ago, the tax community was not overly concerned. The provision was too general. It had no teeth. The good old days went along pretty much the same in terms of aggressive tax planning for some time. Even the courts were somewhat reluctant to impose the GAAR, calling it a provision of “last resort”.

It’s now 2010, and all that has changed. The Supreme Court of Canada has now come down twice in favour of the GAAR . Tax shelter plans that were touted and sold in the 1990’s are being challenged and defeated in the 2000’s. The Quebec government has instituted reporting requirements and hefty penalties unless certain “aggressive” transactions are reported to them. The federal Minister of Finance has followed Quebec’s lead in proposing a “reportable transaction” regime.

Perhaps the most disturbing news comes from the Canadian Tax Foundation who this month reported some incredible statistics regarding the CRA and its increasing zeal for applying the GAAR. As you may be aware, any file that has a potential for a GAAR assessment must be referred to a special committee in Ottawa. Since its inception, the GAAR committee has recommended the application of the GAAR in 72 per cent of all cases brought to it.

Now, get this: Since the start of last year, 99 cases have been referred to Ottawa. The committee has chosen to apply the GAAR in 98 of them!

So, when a fresh-faced fearless tax man comes to me with a plan that might be a candidate for the GAAR, I look him in the eye with no qualms and I say, “you’re damn right I’m scared.”