Deans Knight: The case for rethinking GAAR amendments - Key takeaways

In so ruling, the Court established the de jure control standard as the threshold inherent in the OSP of the corporate loss restriction rules and, critically, rejected the use of a lower threshold of ‘actual control’ or ‘effective control’ as suggested by the lower courts and the Crown. [...] 3 The Lower Court decisions Tax Court of Canada In considering the application of the GAAR, the Tax Court of Canada (TCC) found the first stage of the GAAR test was met, such that the taxpayer derived a tax benefit from the transactions at issue. [...] Neither the FCA nor the Crown accepted the de jure control standard as inherent in the OSP of the corporate loss restriction regime, and the Supreme Court (both in the Judgment and dissenting reasons) resolved most of the interpretive uncertainty by rejecting the proposed standard of a test reliant on some lower or lesser degree of control over a corporation. [...] It is hard to overstate the importance of the Court’s tethering of the threshold for when the legislative rationale of the corporate loss restriction regime is engaged (i.e., a degree of control that is “functionally equivalent” to that attained by having de jure control) to the de jure control test itself that is used in the normal operation of these rules. [...] Justice Côté’s reasoning in dissent on the legal question of what factors are permissible and relevant in determining the OSP of the corporate loss restriction rules, and the degree of control required to trigger the OPS of the rules, closely reflect the position advanced by the Appellant.