Policy Forum: Sailing Beyond the Sunset? Are De Jure Control and Other Bright-Line Tests Relevant After Deans Knight and the New GAAR?

This article takes readers on a voyage through the Supreme Court of Canada's decision in Deans Knight Income Corp. v. Canada and subsequent cases that apply its interpretation of the general anti-avoidance rule (GAAR). The author draws on metaphors from Greek philosophy and sailing to aid—and lighten—the discussion of the immortality of corporations, bright lines, and the Income Tax Act. The author argues that the majority of the Supreme Court in Deans Knight committed a "purpose error": in applying GAAR, the majority overemphasized subsection 111(5)'s primary purpose of stopping corporate loss trading at the expense of the legislation's other purposes, including providing certainty to public companies with high shareholder turnover. Future cases decided under the amended GAAR may be even more vulnerable to a purpose error. The author then considers whether other bright-line tests in the Act are vulnerable to the same sort of purpose error if GAAR is applied. For example, he examines whether the 30-day time limit in the Act's stop-loss rules could be abused by waiting an extra day to comply with the rule, whether waiting one more day to sell a house could abuse the "flipped property" rules in subsections 12(12) to (14), and whether buying one more share to meet an ownership threshold could abuse part IV or section 113. While each of those strategies could arguably be abusive under the approach taken in Deans Knight , it would be an error to always interpret the rules so broadly. Courts should consider Parliament's purpose in using a bright-line test before applying GAAR, and ask how arbitrary and potentially manipulable the line is.