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UBC Theses and Dissertations

Tax policy and tax avoidance : the general anti-avoidance rule from a tax policy perspective Taylor, Michael Brendan


From a tax policy perspective, tax avoidance creates serious problems by undermining the key objectives and features of a good tax system. Therefore, most advanced tax systems attempt to restrain abusive tax avoidance. The General Anti-Avoidance Rule (the "GAAR") is the primary Canadian control on tax avoidance in the income tax context. Despite the presence of a statutory GAAR, however, Canadian tax law struggles to clearly and consistently identify abusive tax avoidance and to distinguish it from legitimate tax mitigation. In this thesis, the author proposes a theoretical framework for identifying abusive tax avoidance and for controlling it using the GAAR. The tax system is of central importance in democracies like Canada, and certain values linked to equity, fairness, and the rule of law must be respected in distinguishing between tax avoidance and tax mitigation. Drawing on common approaches to identifying tax avoidance, the thesis proposes its own theoretical approach from a tax policy perspective. Courts in other jurisdictions have adopted a variety of judicial doctrines aimed at controlling tax avoidance, such as the business purpose test, the step transaction doctrine, an economic substance analysis, and the abuse of rights doctrine. Canadian courts confronting tax avoidance have declined to adopt any such doctrines as a matter of statutory interpretation. The GAAR is intended to mandate a break from the Canadian interpretive tradition. The GAAR creates a three-step framework to identifying tax avoidance - tax benefit, avoidance transaction, and misuse or abuse. Those concepts are related to the theoretical approaches and anti-avoidance doctrines reviewed in this thesis. The author suggests that the GAAR can be applied in a manner that preserves ideal tax policy outcomes in tax avoidance cases. The thesis examines real tax avoidance scenarios in which Canadian courts have resisted applying the GAAR - a circular financing sale-leaseback transaction, and surplus stripping. The thesis argues that these transactions are indeed abusive when viewed in terms of the theory proposed, and that Canadian courts have made key errors in applying the GAAR.

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