In a Technical Interpretation arising from the November 29, 2016 Canadian Tax Foundation Roundtable (2016-0672091C6, Panourgias, Marina), CRA provided details of the process for proposing an assessment relying on GAAR. Advice on any GAAR assessment is generally obtained from the Abusive Tax Avoidance and Technical Support Division in Headquarters (HQ). HQ relies heavily on the views of the GAAR Committee (GC).

CRA noted that the GC is composed of representatives from the Income Tax Rulings Directorate (CRA), the Legislative Policy Directorate (CRA), the Abusive Tax Avoidance and Technical Support Division of the International and Large Business Directorate (CRA), the Department of Finance, and the Department of Justice and Legal Services (a Department of Justice group which advises CRA on legal matters). Depending on the specific subject matter, not all representatives attend all meetings.

CRA indicated that the process for a GAAR assessment can vary. The audit division at the Tax Services Office (TSO) first reviews the facts to determine whether avoidance transactions have been undertaken.

making representations on why GAAR should not apply

Where the transactions are similar to situations previously considered by the GC, and application of GAAR was recommended, a proposal letter would generally be issued, and the taxpayer’s representations requested. The matter, including any taxpayer representations, would then be referred to HQ for its recommendation.

Where the matter has not previously been considered by the GC, and GAAR is likely to be the primary assessing position, the matter is referred to HQ prior to issuing a proposal letter. HQ generally refers the matter to the GC, but sometimes concludes GAAR is not applicable without consulting the GC.

CRA finally noted that any submission received from the taxpayer or their representatives are forwarded, in their entirety, to HQ.

Editors’ Comment
Some tax practitioners have expressed concerns that individual TSOs appear to be issuing GAAR assessments without consulting HQ. The primary concern is that GAAR proposals and assessments will not be addressed consistently without HQ involvement.