GAARSGlobal Atmospheric and Aerosol Radiation Study
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application of judicially-created anti-avoidance doctrines or GAARs are
This point applies equally to countries with and without GAARs and
anti-avoidance doctrines and GAARs is one of form rather than the
currently conceived, GAARs are enacted primarily to force a reluctant
With respect to the GAAR, for example, numerous commentators have argued that for the GAAR to be effective it should apply to any transaction that lacks economic substance, even though the transaction was carried out using a valid legal form.
Even though the Explanatory Notes demonstrate a legislative intention that the GAAR is intended to ensure that the provisions of the ITA will "apply to transactions with real economic substance, the Supreme Court held that economic substance is relevant under the GAAR only if the provisions in question contemplate or refer to economic substance." (69) In addition, "[v]ery few statutory provisions explicitly refer to economic substance," and "lack of economic substance is only one factor to be considered and is insufficient by itself to establish abusive tax avoidance." (70) It seems in consequence that "economic substance is unlikely to be an important factor in the application of the GAAR if the Supreme Court's approach is adhered to strictly by the lower courts." (71)
As was explained by the SCC, "where the words of a statute give rise to more than one reasonable interpretation, the ordinary meaning of words will play a lesser role, and greater recourse to the context and purpose of the Act may be necessary." (75) Again, this is exemplified by Canada's GAAR. As the SCC recently noted, the GAAR is a "legal mechanism whereby" Parliament directs the court to go "behind the words of the legislation to determine the object, spirit or purpose of the provision or provisions relied upon by the taxpayer." (76) And sometimes, although the taxpayer's transactions will be "in strict compliance with the text of the relevant provisions relied upon, they may not necessarily be in accord with their object, spirit or purpose." (77)
Taxn., IRS (India), http:// (July 19, 2012) (cautioning India's IRS that provisions in its proposed GAAR guidelines are "extraordinarily broad" and "too vague") (accessed Aug.
I will argue in this article for one such manifestation of balance in Canadian tax law: a taxpayer who arranges her affairs according to an appropriately "textual, contextual and purposive" (8) interpretation of the Income Tax Act (the Act) should not be subject to having her conduct recharacterized later by virtue of the GAAR. There are various responses to the question of whether the application of a specific rule should preclude the operation of the general rule.
But Parliament spliced a very different sort of provision into this body of detailed rules: the GAAR is broadly drafted and deliberately intended to negate abusive arrangements that would be allowed under a literal reading of the provisions of the Act.
Notwithstanding the literalist tradition evident in the Duke of Westminster principle, by the time the Supreme Court came to rule on the GAAR, things had dramatically changed.
If specificity is to take precedence over generality, as I argue it normally should, then what is left for the GAAR? Will it apply where there is a SAAR that seeks to deal with the area in question, but does not cover the taxpayer's particular strategy?