General anti-avoidance rule

Defined in subsection 245(1) itself; see the note under “Definitions”. The defined meaning governs each use of the term in subsections (0.1) to (5), and sections 237.3 and 237.4 adopt it for the reportable and notifiable transaction rules. Whether a tax benefit exists is a factual determination (Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54, para. 19), which may be made by comparison with an alternative arrangement that “might reasonably have been carried out but for the existence of the tax benefit” (Copthorne Holdings Ltd. v. Canada, 2011 SCC 63, para. 35). Not defined in the three interpretation statutes.

Subsection (3) itself says when a transaction “is an avoidance transaction”: unless it may reasonably be considered that obtaining the tax benefit is not one of the main purposes for undertaking or arranging it, a transaction is an avoidance transaction if it, or a series of which it is part, would, but for section 245, result directly or indirectly in a tax benefit. Whether a transaction is an avoidance transaction is the second of the three steps in Canada Trustco (para. 17), the burden of refuting it is on the taxpayer (para. 66), and the purpose inquiry is “an objective assessment of the relative importance of the driving forces of the transaction” on all the evidence (paras. 28–29; Copthorne Holdings Ltd. v. Canada, 2011 SCC 63, para. 59). A “reportable transaction” in subsection 237.3(1) is built on the same expression. See “Interpretation and application”. Not defined in the three interpretation statutes.

Not defined in the Act. Abusive tax avoidance is the third of the three requirements for applying the rule (Canada Trustco, para. 17). The court conducts a unified textual, contextual, and purposive analysis to determine why the provisions giving rise to the benefit were put in place, and then asks whether the avoidance transaction is consistent with their object, spirit, or purpose (para. 66); the burden is on the Minister, and if abuse is unclear the benefit of the doubt goes to the taxpayer (para. 66). Abuse is found where the transaction achieves an outcome the provision was meant to prevent, defeats its underlying rationale, or circumvents it in a manner that frustrates its object, spirit, or purpose, and there is no distinction between “abuse” and “misuse” (Copthorne, paras. 72–73). The object, spirit, and purpose “reflects the rationale of the provision” (Deans Knight, para. 57), expressed as a concise description of that rationale (para. 60), which may relate to the basis for relief, the conduct Parliament sought to encourage, or the mischief it sought to prevent (para. 61). Subsection (4) extends the inquiry to the Income Tax Regulations, the Income Tax Application Rules, a tax treaty, and other relevant enactments, and subsection (4.1) makes a significant lack of economic substance “an important consideration” pointing to misuse or abuse. Not defined in the three interpretation statutes; s. 4.1 of the Income Tax Conventions Interpretation Act, R.S.C. 1985, c. I-4, confirms that section 245 applies to treaty benefits.

“Taxpayer includes any person whether or not liable to pay tax” (subsection 248(1)). Paragraph (4.2)(a) compares the taxpayer’s opportunity for gain and risk of loss, taken together with those of all non-arm’s length taxpayers, before and after the transaction. Not defined in the three interpretation statutes.

“Enactment means an Act or regulation or any portion of an Act or regulation” (Interpretation Act, s. 2(1)). Subparagraph (4)(a)(v) reaches “any other enactment that is relevant in computing tax or any other amount payable by or refundable to a person under this Act”, subsection (0.1) refers to “the enactments listed in subparagraphs (4)(a)(ii) to (v)”, and subsection (5) applies “notwithstanding any other enactment”. Not defined in the Act, the Income Tax Application Rules, or the Income Tax Conventions Interpretation Act.

“Person, or any word or expression descriptive of a person, includes any corporation, and any entity exempt, because of subsection 149(1), from tax under Part I on all or part of the entity’s taxable income and the heirs, executors, liquidators of a succession, administrators or other legal representatives of such a person” (subsection 248(1)). In section 245 the tax consequences are redetermined “to a person”, amounts may be allocated “to any person” (paragraph (5)(b)), and “any person” other than the one assessed may request adjustments (subsection (6)). For sections 237.3 and 237.4, which subsection (5.1) incorporates, “person includes a partnership”. The Interpretation Act, s. 35(1), provides that “person, or any word or expression descriptive of a person, includes a corporation”. The Income Tax Application Rules and the Income Tax Conventions Interpretation Act add nothing on this term.

“Amount means money, rights or things expressed in terms of the amount of money or the value in terms of money of the right or thing”, subject to special rules for stock dividends (subsection 248(1)). The phrase “tax or other amount payable” and “any other amount” in the definitions and in subsections (4) and (5) extend the rule beyond Part I tax to other amounts payable or refundable under the Act. Not defined in the three interpretation statutes.

Income for a taxation year is the amount determined under section 3; “taxable income has the meaning assigned by subsection 2(2), except that in no case may a taxpayer’s taxable income be less than nil”; and “taxable income earned in Canada means a taxpayer’s taxable income earned in Canada determined in accordance with Division D of Part I, except that in no case may a taxpayer’s taxable income earned in Canada be less than nil” (subsection 248(1)). These are the amounts named in paragraph (a) of “tax consequences” and in paragraph (5)(a). Not defined in the three interpretation statutes.

Not defined in subsection 248(1); refunds of tax paid are made by the Minister under section 164, beginning with subsection 164(1). Paragraph (b) of “tax benefit” includes “an increase in a refund of tax or other amount under this Act”, including one resulting from a tax treaty, and paragraph (b) of “tax consequences” covers the tax or other amount “refundable to” the person. Not defined in the three interpretation statutes.

“Tax treaty with a country at any time means a comprehensive agreement or convention for the elimination of double taxation on income, between the Government of Canada and the government of the country, which has the force of law in Canada at that time” (subsection 248(1)). A benefit obtained “but for a tax treaty” or “as a result of a tax treaty” is a tax benefit (subsection 245(1)), and a tax treaty is one of the instruments whose misuse engages subsection (2) (subparagraph (4)(a)(iv)). The Income Tax Conventions Interpretation Act defines “convention” as “any convention or agreement between Canada and another state relating to tax on income”, including any protocol or supplementary agreement (s. 2), gives undefined treaty terms their meaning under Canadian law (s. 3), and declares that “section 245 of the Income Tax Act applies to any benefit provided under the convention” notwithstanding the convention or the Act giving it the force of law (s. 4.1). The Interpretation Act and the Income Tax Application Rules do not define the term.

Defined in subsection 245(1) itself; see the note under “Definitions”. The defined meaning governs each use of the term in subsections (0.1) to (5), and sections 237.3 and 237.4 adopt it for the reportable and notifiable transaction rules. Whether a tax benefit exists is a factual determination (Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54, para. 19), which may be made by comparison with an alternative arrangement that “might reasonably have been carried out but for the existence of the tax benefit” (Copthorne Holdings Ltd. v. Canada, 2011 SCC 63, para. 35). Not defined in the three interpretation statutes.

Defined in subsection 245(1) itself; see the note under “Definitions”. It is what subsection (2) redetermines, what subsection (5) adjusts “without restricting the generality of subsection (2)”, and what subsection (7) says may be determined only by an assessment, reassessment, additional assessment, or determination. By subsection 152(1.111) the subsection 245(1) definitions also apply to subsection 152(1.11). Not defined in the three interpretation statutes.

“Transaction includes an arrangement or event” (subsection 245(1)); see the note under “Definitions”. The same meaning applies in sections 237.3 and 237.4. Not defined in the three interpretation statutes.

Subsection (3) itself says when a transaction “is an avoidance transaction”: unless it may reasonably be considered that obtaining the tax benefit is not one of the main purposes for undertaking or arranging it, a transaction is an avoidance transaction if it, or a series of which it is part, would, but for section 245, result directly or indirectly in a tax benefit. Whether a transaction is an avoidance transaction is the second of the three steps in Canada Trustco (para. 17), the burden of refuting it is on the taxpayer (para. 66), and the purpose inquiry is “an objective assessment of the relative importance of the driving forces of the transaction” on all the evidence (paras. 28–29; Copthorne Holdings Ltd. v. Canada, 2011 SCC 63, para. 59). A “reportable transaction” in subsection 237.3(1) is built on the same expression. See “Interpretation and application”. Not defined in the three interpretation statutes.

“For the purposes of this Act, where there is a reference to a series of transactions or events, the series shall be deemed to include any related transactions or events completed in contemplation of the series” (subsection 248(10)). At common law a series consists of transactions “pre-ordained in order to produce a given result” with “no practical likelihood that the pre-planned events would not take place in the order ordained” (Canada Trustco, para. 25); subsection 248(10) adds a related transaction that was done “in relation to” or “because of” the series, a test that does not require a “strong nexus” but requires more than a “mere possibility” (Copthorne, paras. 43 and 46–47), and the connection may be prospective or retrospective (para. 56). In section 245 the series matters at every stage: the benefit may result from the series (subsections (2) and (3)), economic substance is tested on the transaction or the series (subsections (4.1) and (4.2)), and the penalty and its exception look to the series (subsections (5.1) and (5.2)). Not defined in the three interpretation statutes.

“Person, or any word or expression descriptive of a person, includes any corporation, and any entity exempt, because of subsection 149(1), from tax under Part I on all or part of the entity’s taxable income and the heirs, executors, liquidators of a succession, administrators or other legal representatives of such a person” (subsection 248(1)). In section 245 the tax consequences are redetermined “to a person”, amounts may be allocated “to any person” (paragraph (5)(b)), and “any person” other than the one assessed may request adjustments (subsection (6)). For sections 237.3 and 237.4, which subsection (5.1) incorporates, “person includes a partnership”. The Interpretation Act, s. 35(1), provides that “person, or any word or expression descriptive of a person, includes a corporation”. The Income Tax Application Rules and the Income Tax Conventions Interpretation Act add nothing on this term.

Defined in subsection 245(1) itself; see the note under “Definitions”. The defined meaning governs each use of the term in subsections (0.1) to (5), and sections 237.3 and 237.4 adopt it for the reportable and notifiable transaction rules. Whether a tax benefit exists is a factual determination (Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54, para. 19), which may be made by comparison with an alternative arrangement that “might reasonably have been carried out but for the existence of the tax benefit” (Copthorne Holdings Ltd. v. Canada, 2011 SCC 63, para. 35). Not defined in the three interpretation statutes.

“Transaction includes an arrangement or event” (subsection 245(1)); see the note under “Definitions”. The same meaning applies in sections 237.3 and 237.4. Not defined in the three interpretation statutes.

Subsection (3) itself says when a transaction “is an avoidance transaction”: unless it may reasonably be considered that obtaining the tax benefit is not one of the main purposes for undertaking or arranging it, a transaction is an avoidance transaction if it, or a series of which it is part, would, but for section 245, result directly or indirectly in a tax benefit. Whether a transaction is an avoidance transaction is the second of the three steps in Canada Trustco (para. 17), the burden of refuting it is on the taxpayer (para. 66), and the purpose inquiry is “an objective assessment of the relative importance of the driving forces of the transaction” on all the evidence (paras. 28–29; Copthorne Holdings Ltd. v. Canada, 2011 SCC 63, para. 59). A “reportable transaction” in subsection 237.3(1) is built on the same expression. See “Interpretation and application”. Not defined in the three interpretation statutes.

For transactions on or after 1 January 2024, a transaction escapes subsection (3) only if it may reasonably be considered that obtaining the tax benefit is not “one of the main purposes” for undertaking or arranging it; paragraph (4.2)(c) separately treats a purpose that is “entire, or almost entire[ly]” to obtain the tax benefit as a factor indicating a lack of economic substance. The former text, which still governs earlier transactions, excluded a transaction “undertaken or arranged primarily for bona fide purposes other than to obtain the tax benefit”; under it, where there are both tax and non-tax purposes, the question was whether it was reasonable to conclude that the non-tax purpose was primary (Canada Trustco, para. 27), and a taxpayer “cannot avoid the application of the GAAR by merely stating that the transaction was undertaken or arranged primarily for a non-tax purpose” (para. 29). No appellate decision on the new wording is cited on this page. Not defined in the three interpretation statutes.

“For the purposes of this Act, where there is a reference to a series of transactions or events, the series shall be deemed to include any related transactions or events completed in contemplation of the series” (subsection 248(10)). At common law a series consists of transactions “pre-ordained in order to produce a given result” with “no practical likelihood that the pre-planned events would not take place in the order ordained” (Canada Trustco, para. 25); subsection 248(10) adds a related transaction that was done “in relation to” or “because of” the series, a test that does not require a “strong nexus” but requires more than a “mere possibility” (Copthorne, paras. 43 and 46–47), and the connection may be prospective or retrospective (para. 56). In section 245 the series matters at every stage: the benefit may result from the series (subsections (2) and (3)), economic substance is tested on the transaction or the series (subsections (4.1) and (4.2)), and the penalty and its exception look to the series (subsections (5.1) and (5.2)). Not defined in the three interpretation statutes.

“Transaction includes an arrangement or event” (subsection 245(1)); see the note under “Definitions”. The same meaning applies in sections 237.3 and 237.4. Not defined in the three interpretation statutes.

Not defined in the Act. Abusive tax avoidance is the third of the three requirements for applying the rule (Canada Trustco, para. 17). The court conducts a unified textual, contextual, and purposive analysis to determine why the provisions giving rise to the benefit were put in place, and then asks whether the avoidance transaction is consistent with their object, spirit, or purpose (para. 66); the burden is on the Minister, and if abuse is unclear the benefit of the doubt goes to the taxpayer (para. 66). Abuse is found where the transaction achieves an outcome the provision was meant to prevent, defeats its underlying rationale, or circumvents it in a manner that frustrates its object, spirit, or purpose, and there is no distinction between “abuse” and “misuse” (Copthorne, paras. 72–73). The object, spirit, and purpose “reflects the rationale of the provision” (Deans Knight, para. 57), expressed as a concise description of that rationale (para. 60), which may relate to the basis for relief, the conduct Parliament sought to encourage, or the mischief it sought to prevent (para. 61). Subsection (4) extends the inquiry to the Income Tax Regulations, the Income Tax Application Rules, a tax treaty, and other relevant enactments, and subsection (4.1) makes a significant lack of economic substance “an important consideration” pointing to misuse or abuse. Not defined in the three interpretation statutes; s. 4.1 of the Income Tax Conventions Interpretation Act, R.S.C. 1985, c. I-4, confirms that section 245 applies to treaty benefits.

“Person, or any word or expression descriptive of a person, includes any corporation, and any entity exempt, because of subsection 149(1), from tax under Part I on all or part of the entity’s taxable income and the heirs, executors, liquidators of a succession, administrators or other legal representatives of such a person” (subsection 248(1)). In section 245 the tax consequences are redetermined “to a person”, amounts may be allocated “to any person” (paragraph (5)(b)), and “any person” other than the one assessed may request adjustments (subsection (6)). For sections 237.3 and 237.4, which subsection (5.1) incorporates, “person includes a partnership”. The Interpretation Act, s. 35(1), provides that “person, or any word or expression descriptive of a person, includes a corporation”. The Income Tax Application Rules and the Income Tax Conventions Interpretation Act add nothing on this term.

“Amount means money, rights or things expressed in terms of the amount of money or the value in terms of money of the right or thing”, subject to special rules for stock dividends (subsection 248(1)). The phrase “tax or other amount payable” and “any other amount” in the definitions and in subsections (4) and (5) extend the rule beyond Part I tax to other amounts payable or refundable under the Act. Not defined in the three interpretation statutes.

“Tax treaty with a country at any time means a comprehensive agreement or convention for the elimination of double taxation on income, between the Government of Canada and the government of the country, which has the force of law in Canada at that time” (subsection 248(1)). A benefit obtained “but for a tax treaty” or “as a result of a tax treaty” is a tax benefit (subsection 245(1)), and a tax treaty is one of the instruments whose misuse engages subsection (2) (subparagraph (4)(a)(iv)). The Income Tax Conventions Interpretation Act defines “convention” as “any convention or agreement between Canada and another state relating to tax on income”, including any protocol or supplementary agreement (s. 2), gives undefined treaty terms their meaning under Canadian law (s. 3), and declares that “section 245 of the Income Tax Act applies to any benefit provided under the convention” notwithstanding the convention or the Act giving it the force of law (s. 4.1). The Interpretation Act and the Income Tax Application Rules do not define the term.

“Regulation means a regulation made by the Governor in Council under this Act” (subsection 248(1)); the Income Tax Regulations are those regulations. Subparagraph (4)(a)(ii) makes a misuse of the Regulations a ground for applying subsection (2). The Interpretation Act defines “regulation” broadly to include an order, rule, form, or other instrument made in the execution of a power conferred by an Act (s. 2(1)), and provides that “expressions used in the regulations have the same respective meanings as in the enactment conferring the power” (s. 16). Not addressed in the Income Tax Application Rules or the Income Tax Conventions Interpretation Act.

The Rules are a separate statute (short title in s. 7) containing the transitional rules for the 1972 reform, such as the valuation-day rules for pre-1972 property in s. 26. They define “amended Act” as, according to the context, the 1952 Act as amended by S.C. 1970-71-72, c. 63, and any subsequent Act, and “the Income Tax Act, as amended from time to time”, and “former Act” as the 1952 Act before that amendment (s. 8). Subparagraph (4)(a)(iii) names the Rules as an enactment whose misuse engages subsection (2), so a transaction that exploits a transitional rule is within the reach of section 245. The Interpretation Act and the Income Tax Conventions Interpretation Act add nothing on this term.

“Enactment means an Act or regulation or any portion of an Act or regulation” (Interpretation Act, s. 2(1)). Subparagraph (4)(a)(v) reaches “any other enactment that is relevant in computing tax or any other amount payable by or refundable to a person under this Act”, subsection (0.1) refers to “the enactments listed in subparagraphs (4)(a)(ii) to (v)”, and subsection (5) applies “notwithstanding any other enactment”. Not defined in the Act, the Income Tax Application Rules, or the Income Tax Conventions Interpretation Act.

“Transaction includes an arrangement or event” (subsection 245(1)); see the note under “Definitions”. The same meaning applies in sections 237.3 and 237.4. Not defined in the three interpretation statutes.

Subsection (3) itself says when a transaction “is an avoidance transaction”: unless it may reasonably be considered that obtaining the tax benefit is not one of the main purposes for undertaking or arranging it, a transaction is an avoidance transaction if it, or a series of which it is part, would, but for section 245, result directly or indirectly in a tax benefit. Whether a transaction is an avoidance transaction is the second of the three steps in Canada Trustco (para. 17), the burden of refuting it is on the taxpayer (para. 66), and the purpose inquiry is “an objective assessment of the relative importance of the driving forces of the transaction” on all the evidence (paras. 28–29; Copthorne Holdings Ltd. v. Canada, 2011 SCC 63, para. 59). A “reportable transaction” in subsection 237.3(1) is built on the same expression. See “Interpretation and application”. Not defined in the three interpretation statutes.

“For the purposes of this Act, where there is a reference to a series of transactions or events, the series shall be deemed to include any related transactions or events completed in contemplation of the series” (subsection 248(10)). At common law a series consists of transactions “pre-ordained in order to produce a given result” with “no practical likelihood that the pre-planned events would not take place in the order ordained” (Canada Trustco, para. 25); subsection 248(10) adds a related transaction that was done “in relation to” or “because of” the series, a test that does not require a “strong nexus” but requires more than a “mere possibility” (Copthorne, paras. 43 and 46–47), and the connection may be prospective or retrospective (para. 56). In section 245 the series matters at every stage: the benefit may result from the series (subsections (2) and (3)), economic substance is tested on the transaction or the series (subsections (4.1) and (4.2)), and the penalty and its exception look to the series (subsections (5.1) and (5.2)). Not defined in the three interpretation statutes.

Not defined in the Act. Abusive tax avoidance is the third of the three requirements for applying the rule (Canada Trustco, para. 17). The court conducts a unified textual, contextual, and purposive analysis to determine why the provisions giving rise to the benefit were put in place, and then asks whether the avoidance transaction is consistent with their object, spirit, or purpose (para. 66); the burden is on the Minister, and if abuse is unclear the benefit of the doubt goes to the taxpayer (para. 66). Abuse is found where the transaction achieves an outcome the provision was meant to prevent, defeats its underlying rationale, or circumvents it in a manner that frustrates its object, spirit, or purpose, and there is no distinction between “abuse” and “misuse” (Copthorne, paras. 72–73). The object, spirit, and purpose “reflects the rationale of the provision” (Deans Knight, para. 57), expressed as a concise description of that rationale (para. 60), which may relate to the basis for relief, the conduct Parliament sought to encourage, or the mischief it sought to prevent (para. 61). Subsection (4) extends the inquiry to the Income Tax Regulations, the Income Tax Application Rules, a tax treaty, and other relevant enactments, and subsection (4.1) makes a significant lack of economic substance “an important consideration” pointing to misuse or abuse. Not defined in the three interpretation statutes; s. 4.1 of the Income Tax Conventions Interpretation Act, R.S.C. 1985, c. I-4, confirms that section 245 applies to treaty benefits.

Subsection (4.2) does not define the expression but lists factors that “may include, but are not limited to”: an opportunity for gain or profit and risk of loss that, taken together with those of non-arm’s length taxpayers, “remains unchanged”, including because of a circular flow of funds, offsetting financial positions, timing, or an accommodation party; an expected tax benefit exceeding the “expected non-tax economic return”; and an entire or almost entire purpose of obtaining the tax benefit. Before the 2024 amendments the Supreme Court held that the expression “may be open to different interpretations” (Canada Trustco, para. 56), that a transaction is not abusive “merely because an economic or commercial purpose is not evident” (para. 57), and that economic substance “has little meaning in isolation from the proper interpretation of specific provisions of the Act” (para. 76). Subsection (4.1) now makes a significant lack of economic substance “an important consideration that tends to indicate” misuse or abuse, for transactions on or after 1 January 2024. Not defined in the three interpretation statutes.

Defined in subsection 245(1) itself; see the note under “Definitions”. The defined meaning governs each use of the term in subsections (0.1) to (5), and sections 237.3 and 237.4 adopt it for the reportable and notifiable transaction rules. Whether a tax benefit exists is a factual determination (Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54, para. 19), which may be made by comparison with an alternative arrangement that “might reasonably have been carried out but for the existence of the tax benefit” (Copthorne Holdings Ltd. v. Canada, 2011 SCC 63, para. 35). Not defined in the three interpretation statutes.

“Transaction includes an arrangement or event” (subsection 245(1)); see the note under “Definitions”. The same meaning applies in sections 237.3 and 237.4. Not defined in the three interpretation statutes.

For transactions on or after 1 January 2024, a transaction escapes subsection (3) only if it may reasonably be considered that obtaining the tax benefit is not “one of the main purposes” for undertaking or arranging it; paragraph (4.2)(c) separately treats a purpose that is “entire, or almost entire[ly]” to obtain the tax benefit as a factor indicating a lack of economic substance. The former text, which still governs earlier transactions, excluded a transaction “undertaken or arranged primarily for bona fide purposes other than to obtain the tax benefit”; under it, where there are both tax and non-tax purposes, the question was whether it was reasonable to conclude that the non-tax purpose was primary (Canada Trustco, para. 27), and a taxpayer “cannot avoid the application of the GAAR by merely stating that the transaction was undertaken or arranged primarily for a non-tax purpose” (para. 29). No appellate decision on the new wording is cited on this page. Not defined in the three interpretation statutes.

“For the purposes of this Act, where there is a reference to a series of transactions or events, the series shall be deemed to include any related transactions or events completed in contemplation of the series” (subsection 248(10)). At common law a series consists of transactions “pre-ordained in order to produce a given result” with “no practical likelihood that the pre-planned events would not take place in the order ordained” (Canada Trustco, para. 25); subsection 248(10) adds a related transaction that was done “in relation to” or “because of” the series, a test that does not require a “strong nexus” but requires more than a “mere possibility” (Copthorne, paras. 43 and 46–47), and the connection may be prospective or retrospective (para. 56). In section 245 the series matters at every stage: the benefit may result from the series (subsections (2) and (3)), economic substance is tested on the transaction or the series (subsections (4.1) and (4.2)), and the penalty and its exception look to the series (subsections (5.1) and (5.2)). Not defined in the three interpretation statutes.

Subsection (4.2) does not define the expression but lists factors that “may include, but are not limited to”: an opportunity for gain or profit and risk of loss that, taken together with those of non-arm’s length taxpayers, “remains unchanged”, including because of a circular flow of funds, offsetting financial positions, timing, or an accommodation party; an expected tax benefit exceeding the “expected non-tax economic return”; and an entire or almost entire purpose of obtaining the tax benefit. Before the 2024 amendments the Supreme Court held that the expression “may be open to different interpretations” (Canada Trustco, para. 56), that a transaction is not abusive “merely because an economic or commercial purpose is not evident” (para. 57), and that economic substance “has little meaning in isolation from the proper interpretation of specific provisions of the Act” (para. 76). Subsection (4.1) now makes a significant lack of economic substance “an important consideration that tends to indicate” misuse or abuse, for transactions on or after 1 January 2024. Not defined in the three interpretation statutes.

“Taxpayer includes any person whether or not liable to pay tax” (subsection 248(1)). Paragraph (4.2)(a) compares the taxpayer’s opportunity for gain and risk of loss, taken together with those of all non-arm’s length taxpayers, before and after the transaction. Not defined in the three interpretation statutes.

For the purposes of the Act, related persons “shall be deemed not to deal with each other at arm’s length”, a taxpayer and certain personal trusts are deemed not to deal at arm’s length, and “in any other case, it is a question of fact whether persons not related to each other are, at a particular time, dealing with each other at arm’s length” (subsection 251(1)). Paragraph (4.2)(a) aggregates the economic position of the taxpayer with that of non-arm’s length taxpayers, other than those who can reasonably be considered to have economic interests “largely adverse” to the taxpayer’s. Not defined in the three interpretation statutes.

Defined in subsection 245(1) itself; see the note under “Definitions”. The defined meaning governs each use of the term in subsections (0.1) to (5), and sections 237.3 and 237.4 adopt it for the reportable and notifiable transaction rules. Whether a tax benefit exists is a factual determination (Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54, para. 19), which may be made by comparison with an alternative arrangement that “might reasonably have been carried out but for the existence of the tax benefit” (Copthorne Holdings Ltd. v. Canada, 2011 SCC 63, para. 35). Not defined in the three interpretation statutes.

Defined in subsection 245(1) itself; see the note under “Definitions”. It is what subsection (2) redetermines, what subsection (5) adjusts “without restricting the generality of subsection (2)”, and what subsection (7) says may be determined only by an assessment, reassessment, additional assessment, or determination. By subsection 152(1.111) the subsection 245(1) definitions also apply to subsection 152(1.11). Not defined in the three interpretation statutes.

Subsection (3) itself says when a transaction “is an avoidance transaction”: unless it may reasonably be considered that obtaining the tax benefit is not one of the main purposes for undertaking or arranging it, a transaction is an avoidance transaction if it, or a series of which it is part, would, but for section 245, result directly or indirectly in a tax benefit. Whether a transaction is an avoidance transaction is the second of the three steps in Canada Trustco (para. 17), the burden of refuting it is on the taxpayer (para. 66), and the purpose inquiry is “an objective assessment of the relative importance of the driving forces of the transaction” on all the evidence (paras. 28–29; Copthorne Holdings Ltd. v. Canada, 2011 SCC 63, para. 59). A “reportable transaction” in subsection 237.3(1) is built on the same expression. See “Interpretation and application”. Not defined in the three interpretation statutes.

“Person, or any word or expression descriptive of a person, includes any corporation, and any entity exempt, because of subsection 149(1), from tax under Part I on all or part of the entity’s taxable income and the heirs, executors, liquidators of a succession, administrators or other legal representatives of such a person” (subsection 248(1)). In section 245 the tax consequences are redetermined “to a person”, amounts may be allocated “to any person” (paragraph (5)(b)), and “any person” other than the one assessed may request adjustments (subsection (6)). For sections 237.3 and 237.4, which subsection (5.1) incorporates, “person includes a partnership”. The Interpretation Act, s. 35(1), provides that “person, or any word or expression descriptive of a person, includes a corporation”. The Income Tax Application Rules and the Income Tax Conventions Interpretation Act add nothing on this term.

“Amount means money, rights or things expressed in terms of the amount of money or the value in terms of money of the right or thing”, subject to special rules for stock dividends (subsection 248(1)). The phrase “tax or other amount payable” and “any other amount” in the definitions and in subsections (4) and (5) extend the rule beyond Part I tax to other amounts payable or refundable under the Act. Not defined in the three interpretation statutes.

Income for a taxation year is the amount determined under section 3; “taxable income has the meaning assigned by subsection 2(2), except that in no case may a taxpayer’s taxable income be less than nil”; and “taxable income earned in Canada means a taxpayer’s taxable income earned in Canada determined in accordance with Division D of Part I, except that in no case may a taxpayer’s taxable income earned in Canada be less than nil” (subsection 248(1)). These are the amounts named in paragraph (a) of “tax consequences” and in paragraph (5)(a). Not defined in the three interpretation statutes.

“In this Act, the tax payable by a taxpayer under any Part of this Act by or under which provision is made for the assessment of tax means the tax payable by the taxpayer as fixed by assessment or reassessment subject to variation on objection or on appeal” (subsection 248(2)). Variables A and B of the penalty formula in subsection (5.1) measure the increase in tax payable, and the reduction in amounts deemed paid on account of Part I tax payable, that result from applying subsection (2). Not defined in the three interpretation statutes.

The words are not defined as such. Deductions in computing taxable income are those “permitted by Division C” (subsection 2(2)), and “exempt income means property received or acquired by a person in such circumstances that it is, because of any provision of Part I, not included in computing the person’s income” (subsection 248(1)). Paragraph (5)(a) allows any deduction, exemption, or exclusion “in computing income, taxable income, taxable income earned in Canada or tax payable” to be allowed or disallowed in whole or in part; the words “exemption or exclusion” were added by S.C. 2005, c. 19, s. 52. Not defined in the three interpretation statutes.

“Enactment means an Act or regulation or any portion of an Act or regulation” (Interpretation Act, s. 2(1)). Subparagraph (4)(a)(v) reaches “any other enactment that is relevant in computing tax or any other amount payable by or refundable to a person under this Act”, subsection (0.1) refers to “the enactments listed in subparagraphs (4)(a)(ii) to (v)”, and subsection (5) applies “notwithstanding any other enactment”. Not defined in the Act, the Income Tax Application Rules, or the Income Tax Conventions Interpretation Act.

Defined in subsection 245(1) itself; see the note under “Definitions”. The defined meaning governs each use of the term in subsections (0.1) to (5), and sections 237.3 and 237.4 adopt it for the reportable and notifiable transaction rules. Whether a tax benefit exists is a factual determination (Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54, para. 19), which may be made by comparison with an alternative arrangement that “might reasonably have been carried out but for the existence of the tax benefit” (Copthorne Holdings Ltd. v. Canada, 2011 SCC 63, para. 35). Not defined in the three interpretation statutes.

Defined in subsection 245(1) itself; see the note under “Definitions”. It is what subsection (2) redetermines, what subsection (5) adjusts “without restricting the generality of subsection (2)”, and what subsection (7) says may be determined only by an assessment, reassessment, additional assessment, or determination. By subsection 152(1.111) the subsection 245(1) definitions also apply to subsection 152(1.11). Not defined in the three interpretation statutes.

“Transaction includes an arrangement or event” (subsection 245(1)); see the note under “Definitions”. The same meaning applies in sections 237.3 and 237.4. Not defined in the three interpretation statutes.

“For the purposes of this Act, where there is a reference to a series of transactions or events, the series shall be deemed to include any related transactions or events completed in contemplation of the series” (subsection 248(10)). At common law a series consists of transactions “pre-ordained in order to produce a given result” with “no practical likelihood that the pre-planned events would not take place in the order ordained” (Canada Trustco, para. 25); subsection 248(10) adds a related transaction that was done “in relation to” or “because of” the series, a test that does not require a “strong nexus” but requires more than a “mere possibility” (Copthorne, paras. 43 and 46–47), and the connection may be prospective or retrospective (para. 56). In section 245 the series matters at every stage: the benefit may result from the series (subsections (2) and (3)), economic substance is tested on the transaction or the series (subsections (4.1) and (4.2)), and the penalty and its exception look to the series (subsections (5.1) and (5.2)). Not defined in the three interpretation statutes.

“Person, or any word or expression descriptive of a person, includes any corporation, and any entity exempt, because of subsection 149(1), from tax under Part I on all or part of the entity’s taxable income and the heirs, executors, liquidators of a succession, administrators or other legal representatives of such a person” (subsection 248(1)). In section 245 the tax consequences are redetermined “to a person”, amounts may be allocated “to any person” (paragraph (5)(b)), and “any person” other than the one assessed may request adjustments (subsection (6)). For sections 237.3 and 237.4, which subsection (5.1) incorporates, “person includes a partnership”. The Interpretation Act, s. 35(1), provides that “person, or any word or expression descriptive of a person, includes a corporation”. The Income Tax Application Rules and the Income Tax Conventions Interpretation Act add nothing on this term.

“Amount means money, rights or things expressed in terms of the amount of money or the value in terms of money of the right or thing”, subject to special rules for stock dividends (subsection 248(1)). The phrase “tax or other amount payable” and “any other amount” in the definitions and in subsections (4) and (5) extend the rule beyond Part I tax to other amounts payable or refundable under the Act. Not defined in the three interpretation statutes.

“In this Act, the tax payable by a taxpayer under any Part of this Act by or under which provision is made for the assessment of tax means the tax payable by the taxpayer as fixed by assessment or reassessment subject to variation on objection or on appeal” (subsection 248(2)). Variables A and B of the penalty formula in subsection (5.1) measure the increase in tax payable, and the reduction in amounts deemed paid on account of Part I tax payable, that result from applying subsection (2). Not defined in the three interpretation statutes.

“Minister means the Minister of National Revenue” (subsection 248(1)). The Minister receives disclosures under sections 237.3 and 237.4 (subsection (5.1)), publishes the administrative guidance on which the penalty exception may rely (paragraph (5.2)(a)), and must act on requests for adjustments “with all due dispatch” (subsection (8)). Under the Interpretation Act, s. 24(2), words empowering a minister include the minister’s deputy and a person appointed to serve in the department in an appropriate capacity. Not addressed in the Income Tax Application Rules or the Income Tax Conventions Interpretation Act.

“(a) in the case of a corporation or Canadian resident partnership, a fiscal period; (b) in the case of a graduated rate estate, the period for which the accounts of the estate are made up for purposes of assessment under this Act; and (c) in any other case, a calendar year” (subsection 249(1)). The penalty in subsection (5.1) is computed and imposed year by year, and variable C prevents a gross negligence penalty under subsection 163(2) from being credited in more than one year. The Interpretation Act, s. 37(1), supplies the general meaning of “year”.

A “reportable transaction” is “an avoidance transaction that is entered into by or for the benefit of a person, and each transaction that is part of a series of transactions that includes the avoidance transaction”, where an advisor or promoter has a fee based on or contingent upon the tax benefit, obtains confidential protection, or where there is contractual protection (subsection 237.3(1)). A “notifiable transaction” is a transaction, or a transaction in a series, “that is the same as, or substantially similar to”, one designated by the Minister (subsection 237.4(1)). Subsection (5.1) applies only to a transaction “that was not disclosed by the person to the Minister in accordance with section 237.3 or 237.4”, which includes an optional disclosure under subsection 237.3(12.1) and a late one under subsection 237.3(12.2). Not defined in the three interpretation statutes.

Variable B of the penalty formula refers to amounts deemed paid on account of tax payable “under Part I” (the income tax). Subsection (5.3) applies sections 152, 158, 159, 160.1, and 164 to 167 and “Division J of Part I” (Appeals to the Tax Court of Canada and the Federal Court of Appeal) to the penalty, so that it is assessed, collected, and open to objection and appeal as tax is. Not defined in the three interpretation statutes.

“Transaction includes an arrangement or event” (subsection 245(1)); see the note under “Definitions”. The same meaning applies in sections 237.3 and 237.4. Not defined in the three interpretation statutes.

“For the purposes of this Act, where there is a reference to a series of transactions or events, the series shall be deemed to include any related transactions or events completed in contemplation of the series” (subsection 248(10)). At common law a series consists of transactions “pre-ordained in order to produce a given result” with “no practical likelihood that the pre-planned events would not take place in the order ordained” (Canada Trustco, para. 25); subsection 248(10) adds a related transaction that was done “in relation to” or “because of” the series, a test that does not require a “strong nexus” but requires more than a “mere possibility” (Copthorne, paras. 43 and 46–47), and the connection may be prospective or retrospective (para. 56). In section 245 the series matters at every stage: the benefit may result from the series (subsections (2) and (3)), economic substance is tested on the transaction or the series (subsections (4.1) and (4.2)), and the penalty and its exception look to the series (subsections (5.1) and (5.2)). Not defined in the three interpretation statutes.

“Person, or any word or expression descriptive of a person, includes any corporation, and any entity exempt, because of subsection 149(1), from tax under Part I on all or part of the entity’s taxable income and the heirs, executors, liquidators of a succession, administrators or other legal representatives of such a person” (subsection 248(1)). In section 245 the tax consequences are redetermined “to a person”, amounts may be allocated “to any person” (paragraph (5)(b)), and “any person” other than the one assessed may request adjustments (subsection (6)). For sections 237.3 and 237.4, which subsection (5.1) incorporates, “person includes a partnership”. The Interpretation Act, s. 35(1), provides that “person, or any word or expression descriptive of a person, includes a corporation”. The Income Tax Application Rules and the Income Tax Conventions Interpretation Act add nothing on this term.

“Minister means the Minister of National Revenue” (subsection 248(1)). The Minister receives disclosures under sections 237.3 and 237.4 (subsection (5.1)), publishes the administrative guidance on which the penalty exception may rely (paragraph (5.2)(a)), and must act on requests for adjustments “with all due dispatch” (subsection (8)). Under the Interpretation Act, s. 24(2), words empowering a minister include the minister’s deputy and a person appointed to serve in the department in an appropriate capacity. Not addressed in the Income Tax Application Rules or the Income Tax Conventions Interpretation Act.

Variable B of the penalty formula refers to amounts deemed paid on account of tax payable “under Part I” (the income tax). Subsection (5.3) applies sections 152, 158, 159, 160.1, and 164 to 167 and “Division J of Part I” (Appeals to the Tax Court of Canada and the Federal Court of Appeal) to the penalty, so that it is assessed, collected, and open to objection and appeal as tax is. Not defined in the three interpretation statutes.

“Transaction includes an arrangement or event” (subsection 245(1)); see the note under “Definitions”. The same meaning applies in sections 237.3 and 237.4. Not defined in the three interpretation statutes.

“Person, or any word or expression descriptive of a person, includes any corporation, and any entity exempt, because of subsection 149(1), from tax under Part I on all or part of the entity’s taxable income and the heirs, executors, liquidators of a succession, administrators or other legal representatives of such a person” (subsection 248(1)). In section 245 the tax consequences are redetermined “to a person”, amounts may be allocated “to any person” (paragraph (5)(b)), and “any person” other than the one assessed may request adjustments (subsection (6)). For sections 237.3 and 237.4, which subsection (5.1) incorporates, “person includes a partnership”. The Interpretation Act, s. 35(1), provides that “person, or any word or expression descriptive of a person, includes a corporation”. The Income Tax Application Rules and the Income Tax Conventions Interpretation Act add nothing on this term.

“Minister means the Minister of National Revenue” (subsection 248(1)). The Minister receives disclosures under sections 237.3 and 237.4 (subsection (5.1)), publishes the administrative guidance on which the penalty exception may rely (paragraph (5.2)(a)), and must act on requests for adjustments “with all due dispatch” (subsection (8)). Under the Interpretation Act, s. 24(2), words empowering a minister include the minister’s deputy and a person appointed to serve in the department in an appropriate capacity. Not addressed in the Income Tax Application Rules or the Income Tax Conventions Interpretation Act.

“Assessment includes a reassessment” (subsection 248(1)); assessments are made under section 152. Subsection (7) provides that the tax consequences following the application of section 245 “shall only be determined through a notice of assessment, reassessment, additional assessment or determination pursuant to subsection 152(1.11)”, and subsection (8) permits an assessment on request “notwithstanding subsection 152(4)”, limited to what relates to the transaction. Not defined in the three interpretation statutes.

Where the Minister “ascertains the tax consequences to a taxpayer because of subsection 245(2)”, the Minister may determine “any amount that is, or could at a subsequent time be, relevant” for computing income, taxable income, taxable income earned in Canada, tax, or an amount refundable, must make such a determination on a request under subsection 245(8), and “shall … send to the taxpayer, with all due dispatch, a notice of determination” (subsection 152(1.11)). The subsection 245(1) definitions apply to it (subsection 152(1.111)), and Division I and Division J apply to it as to an assessment (subsection 152(1.2)). Not defined in the three interpretation statutes.

A notice of assessment or determination that is mailed or sent electronically “shall be presumed to be mailed or sent, as the case may be, on the date of that notice” (subsection 244(14)); an electronic notice to an individual is presumed sent on the date the electronic message informing the individual of it is sent (subsection 244(14.1)). The 180-day period in subsection (6) runs from that day; the word “sending” replaced “mailing” by S.C. 2010, c. 25, s. 68. Not defined in the three interpretation statutes.

Defined in subsection 245(1) itself; see the note under “Definitions”. It is what subsection (2) redetermines, what subsection (5) adjusts “without restricting the generality of subsection (2)”, and what subsection (7) says may be determined only by an assessment, reassessment, additional assessment, or determination. By subsection 152(1.111) the subsection 245(1) definitions also apply to subsection 152(1.11). Not defined in the three interpretation statutes.

“Person, or any word or expression descriptive of a person, includes any corporation, and any entity exempt, because of subsection 149(1), from tax under Part I on all or part of the entity’s taxable income and the heirs, executors, liquidators of a succession, administrators or other legal representatives of such a person” (subsection 248(1)). In section 245 the tax consequences are redetermined “to a person”, amounts may be allocated “to any person” (paragraph (5)(b)), and “any person” other than the one assessed may request adjustments (subsection (6)). For sections 237.3 and 237.4, which subsection (5.1) incorporates, “person includes a partnership”. The Interpretation Act, s. 35(1), provides that “person, or any word or expression descriptive of a person, includes a corporation”. The Income Tax Application Rules and the Income Tax Conventions Interpretation Act add nothing on this term.

“Assessment includes a reassessment” (subsection 248(1)); assessments are made under section 152. Subsection (7) provides that the tax consequences following the application of section 245 “shall only be determined through a notice of assessment, reassessment, additional assessment or determination pursuant to subsection 152(1.11)”, and subsection (8) permits an assessment on request “notwithstanding subsection 152(4)”, limited to what relates to the transaction. Not defined in the three interpretation statutes.

Where the Minister “ascertains the tax consequences to a taxpayer because of subsection 245(2)”, the Minister may determine “any amount that is, or could at a subsequent time be, relevant” for computing income, taxable income, taxable income earned in Canada, tax, or an amount refundable, must make such a determination on a request under subsection 245(8), and “shall … send to the taxpayer, with all due dispatch, a notice of determination” (subsection 152(1.11)). The subsection 245(1) definitions apply to it (subsection 152(1.111)), and Division I and Division J apply to it as to an assessment (subsection 152(1.2)). Not defined in the three interpretation statutes.

“Transaction includes an arrangement or event” (subsection 245(1)); see the note under “Definitions”. The same meaning applies in sections 237.3 and 237.4. Not defined in the three interpretation statutes.

“Person, or any word or expression descriptive of a person, includes any corporation, and any entity exempt, because of subsection 149(1), from tax under Part I on all or part of the entity’s taxable income and the heirs, executors, liquidators of a succession, administrators or other legal representatives of such a person” (subsection 248(1)). In section 245 the tax consequences are redetermined “to a person”, amounts may be allocated “to any person” (paragraph (5)(b)), and “any person” other than the one assessed may request adjustments (subsection (6)). For sections 237.3 and 237.4, which subsection (5.1) incorporates, “person includes a partnership”. The Interpretation Act, s. 35(1), provides that “person, or any word or expression descriptive of a person, includes a corporation”. The Income Tax Application Rules and the Income Tax Conventions Interpretation Act add nothing on this term.

“Minister means the Minister of National Revenue” (subsection 248(1)). The Minister receives disclosures under sections 237.3 and 237.4 (subsection (5.1)), publishes the administrative guidance on which the penalty exception may rely (paragraph (5.2)(a)), and must act on requests for adjustments “with all due dispatch” (subsection (8)). Under the Interpretation Act, s. 24(2), words empowering a minister include the minister’s deputy and a person appointed to serve in the department in an appropriate capacity. Not addressed in the Income Tax Application Rules or the Income Tax Conventions Interpretation Act.

“Assessment includes a reassessment” (subsection 248(1)); assessments are made under section 152. Subsection (7) provides that the tax consequences following the application of section 245 “shall only be determined through a notice of assessment, reassessment, additional assessment or determination pursuant to subsection 152(1.11)”, and subsection (8) permits an assessment on request “notwithstanding subsection 152(4)”, limited to what relates to the transaction. Not defined in the three interpretation statutes.

Where the Minister “ascertains the tax consequences to a taxpayer because of subsection 245(2)”, the Minister may determine “any amount that is, or could at a subsequent time be, relevant” for computing income, taxable income, taxable income earned in Canada, tax, or an amount refundable, must make such a determination on a request under subsection 245(8), and “shall … send to the taxpayer, with all due dispatch, a notice of determination” (subsection 152(1.11)). The subsection 245(1) definitions apply to it (subsection 152(1.111)), and Division I and Division J apply to it as to an assessment (subsection 152(1.2)). Not defined in the three interpretation statutes.