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The General Anti-Avoidance Rule

The general rule in Canadian taxation is that a taxpayer is free to arrange his or her affairs in a way that minimized the total taxes he or she is liable to pay. In other words, to order his or her affairs to lower the overall tax burden. This is the essence of tax planning.

This general rule is modified by principles of law, including by the General Anti-Avoidance Rule. The General Anti-Avoidance Rule (“GAAR”) is one that is applied to the whole of the taxing statute, and not to particular actions or parts. Just remember, there are specific anti-avoidance rules that may apply to your particular circumstances. That said, the GAAR is the focus of this article.

The GAAR is a provision of last resort that allows the Canada Revenue Agency (“CRA”) to modify the tax consequences of otherwise valid and enforceable tax planning. The GARR only works in very narrow circumstances and only when the government can meet the pre-conditions. The pre-conditions can be summarized as a series of questions that have to be answered in the affirmative before the GAAR can apply. They are:

  1. Was there a tax benefit to the taxpayer as a result of the event or transaction?
  2. Was the event or transaction that gave rise to this tax benefit an “avoidance transaction”?
  3. Was the “avoidance transaction” giving rise to the tax benefit a misuse or abuse of the object, spirit, or purpose a particular provision or the whole statute?

In most cases the first question is easily answered “Yes”, as the CRA would not be pursuing a taxpayer unless they imagine a different way of structuring the transaction or events that would give rise to more tax being payable. The battle between taxpayer and the taxman, in most cases, is over questions 2 and 3.

The details of whether a transaction is an “avoidance transaction” or whether or not the transaction is a misuse or abuse of the object, spirit, or purpose of the tax law is difficult to answer in most cases and well beyond the scope of this article. However, as a general rule, if the transactions or series of transactions were entered into primarily for a valid business reason and not a tax reason, the transaction will not be an “avoidance transaction”. Similarly, where the outcome is exactly what the law intended or matches the policy that was promoted or intended to be promoted by the law, then it is not going to be an abuse or misuse of the object, spirit, or purpose of the tax law. Other than these two clear cut cases, there is a great deal of grey area that taxpayers and the CRA can and do fight over.

Where the CRA meets its burden, they can modify the tax outcomes to ones that would have existed had the avoidance transactions not taken place. This can result in significant tax, interest, and possibly penalties being assessed against the taxpayer.

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ACCESSING THE SMALL BUSINESS DEDUCTION IN YOUR BUSINESS

The Small Business Deduction gives businesses a tax deduction on the first $500,000 of income. This saves an eligible corporation around up to $50,000 in income taxes. There are a number of conditions that have to be met to be eligible for this deduction.

Great experience dealing with Sam Faris and his team. They were transparent, patient with their explanations and they meet all promises. Highly reliable and trustworthy firm. They promise and they meet all their promises. If you are looking for the best tax consultant firm, I highly recommend Faris CPA.
Response from the owner:Many thanks and much appreciated for the kind and positive review.
Sam Faris is a consummate professional whose expertise, clarity, and warmth make him worth every penny. If you need clear answers and effective solutions for complex situations, he’s your go-to.

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Response from the owner:It has been pleasure working with you and feel free to contact us in the future for any further help needed.
Thank you for all your help. Reliable and highly professional firm.
Response from the owner:Thank you for the positive review.
This is an announcement from Aaron Baer, legal counsel to Faris CPA.

I have been working with Faris CPA for more than 10 years.

Faris CPA is being attacked by Kenneth John Weakley (Oct 1969).

I am posting this review because Kenneth John Weakley has been deleting his reviews and has been reposting them, so that Faris CPA's responses don't always show up.

Faris CPA's position is as follows:

Faris CPA is a well-regarded firm that is compliant with CPA Ontario obligations and has a good track record.

Under no circumstances will Faris CPA be paying Kenneth John Weakley any amount.

Kenneth John Weakley's claims do not have any merit.
Response from the owner:Thank you Aaron for your help. Here is my response to Kenneth John Weakley’s fake reviews: “ A warning about fake Google reviews posted by Kenneth John Weakley. He has been posting fake Google reviews under KenW and ShahramK (or variations) about our firm and other professionals. Kenneth John Weakley keeps posting and removing and reposting fake reviews so that his reviews will stay on top and so that our reply will not show up. We searched him and we found out the below information and that he has been posting those reviews from U.K. Kenneth John Weakley DOB October 20, 1969 Address: 821A Fulham Road, London, U.K. SW6 5HG ( Title: NGL449634) Kenneth John Weakley has been attacking the below professionals as well: David Rotfleisch @ Taxpage Marek Tufman Aaron Baer He has been demanding 25k from our firm and from the above professionals to stop posting those reviews. We wish to emphasize that our firm has always complied with our professional obligations, and the interpretation suggested in the fake reviews does not accurately reflect those obligations. We remain committed to serving our clients with professionalism, transparency, and integrity. We are a well-regarded firm and have a good track record. Please see below link to review our record with CPA Ontario. https://www.cpaontario.ca/protecting-the-public/directories/member/faris-6gchzu”