Policy Forum: GAAR Revisited—A Road Map for Continued Analytical Rigour

New interpretive issues arise from the amendments to the general anti-avoidance rule (GAAR), including the introduction of a novel preamble and an economic substance test, as well as the potential for a penalty to apply where abusive tax avoidance is found. In this article, the author provides a litigator's perspective on how these issues might be addressed by the courts. Although the amendments have been justified on the basis that they were intended to "modernize" GAAR, they serve in large part to codify existing principles that have been carefully developed through years of jurisprudence. The author emphasizes that the courts should rely on those principles to ensure that the GAAR analysis is undertaken with the same analytical rigour as has been judicially developed to date. Moreover, given the potential for a substantial penalty to be imposed where GAAR is found to apply, courts should insist on a stronger evidentiary foundation and a higher standard for a finding of misuse or abuse.