2016-0672091C6 2016 CTF – Q7 - GAAR Assessment Process

Principal Issues: Can the CRA comment on what procedures must be followed before a taxpayer can be reassessed under GAAR?

Position: General comments provided.

Author: Panourgias, Marina
Section: -

2016 CTF Annual Conference
CRA Roundtable

Question 7:  Assessment Procedure Under the General Anti-Avoidance Rule

Our understanding is that the GAAR Committee must approve any reassessment invoking the general anti-avoidance rule (“GAAR”) under section 245 prior to such reassessment being made. However, it appears that taxpayers have had different experiences in terms of matters going before the GAAR Committee. In some cases a matter has gone to the GAAR Committee prior to the taxpayer receiving a proposal letter regarding a proposed assessment. In other cases some taxpayers have been reassessed under GAAR without the GAAR Committee first having reviewed the matter, contrary to our understanding set out above. Taxpayers would appreciate greater transparency as to how the GAAR Committee operates from a procedural perspective. Can the CRA comment on what procedures must be followed before a taxpayer can be reassessed under GAAR? Specifically:

a)    Can the CRA comment on the process followed for GAAR Committee referrals at the proposed assessment stage?

b)    Can a GAAR reassessment be made without the file being brought to the attention of the GAAR committee?

c)    If the response to (b) is yes, can the reassessment only be made if the transactions being reassessed and the resulting tax benefit are similar to those involved in another file that has gone before the GAAR Committee, or can the CRA reassess under GAAR without ever having taken the matter to the GAAR Committee?

d)    Do the answers to (b) or (c) change if GAAR is the alternative, as opposed to the primary, assessing position? 

e)    Do taxpayers have to be informed prior to a file being referred to the GAAR Committee so that they have the ability to make representations to the GAAR Committee?

f)    Can the CRA comment on the composition of the GAAR committee? Specifically, how many individuals from the CRA, the Department of Finance, and the DOJ sit on the GAAR Committee, how often are the positions rotated, and does membership change based on the topic before the committee?

CRA Response

Background

The GAAR Committee was established to provide advice on the application of the GAAR in the Income Tax Act (Canada) and the Excise Tax Act, to ensure that the GAAR is applied consistently.  The role of the GAAR Committee is to provide recommendations in respect of the application of GAAR to: (i) proposed transactions for which advance income tax rulings are requested, and (ii) transactions under review by audit.

GAAR Committee Composition

Historically, the Chair and co-secretaries have always been from the Income Tax Rulings Directorate (CRA).  They organize, coordinate and facilitate all meetings.  The directors of all four divisions within the Income Tax Rulings Directorate are invited to and usually attend all GAAR Committee meetings.

The GAAR Committee is an Ad Hoc committee composed of representatives from:  (i) the Income Tax Rulings Directorate (CRA); (ii) the Legislative Policy Directorate (CRA); (iii) the Abusive Tax Avoidance and Technical Support Division of the International and Large Business Directorate (CRA); (iv) the Department of Finance; (v) the Department of Justice; (vi) Legal Services (a group from the Department of Justice dedicated to providing the CRA with legal support).  Although some representatives attend all meetings, others vary depending on the subject matter being discussed at the meeting.

Audit/GAAR Reassessment Process

The audit process for GAAR issues is essentially the same as the process for any audit issue, except that advice is obtained from the Abusive Tax Avoidance and Technical Support Division in Headquarters (“Headquarters”) and, where applicable as described below, the GAAR Committee.  Headquarters’ role is to review files where a Tax Service Office (“TSO”) is considering the application of the GAAR as a primary or alternative assessing position.

The stage at which the TSO sends a proposal letter to a taxpayer on a file involving the GAAR depends on the circumstances.

The TSO will generally review the particular facts of each file to establish the purpose of the transactions and determine if any of the transactions is an avoidance transaction. Where the transactions under audit are similar to situations previously considered by the GAAR Committee and resulted in a recommendation to apply GAAR, generally the TSO will proceed with the proposal letter and obtain the taxpayer’s representations. The TSO will subsequently refer the matter to Headquarters with the taxpayer’s representations (if any), to obtain its recommendation.

Where the TSO reviews the particular facts of a file and determines that the matter has not been previously considered by the GAAR Committee, and the GAAR is likely the primary position, the TSO will refer the matter to Headquarters prior to the issuance of a proposal letter.  In this circumstance, the TSO will generally only proceed with the issuance of a proposal letter if it obtains the recommendation of Headquarters on the application of the GAAR. Headquarters will generally in turn refer the matter to the GAAR Committee for consideration.

Headquarters might sometimes recommend not to proceed with a GAAR reassessment without consulting with the GAAR Committee in circumstances where Headquarters believes that there are no grounds to consider the application of the GAAR.  However, Headquarters may still submit the case to the GAAR Committee to obtain their recommendation.

Any submission received from the taxpayer or the taxpayer’s representatives are forwarded, in their entirety, to Headquarters and, where applicable, the GAAR Committee.  Thus taxpayers should be assured that when the application of the GAAR is considered, all their arguments will have received careful consideration.

Marina Panourgias
Yves Moreno (for the GAAR Committee)
2016-067209
November 29, 2016

Response prepared in collaboration with:
Suzanne Saydeh and Len Lubbers
Abusive Tax Avoidance and Technical Support Division
International and Large Business Directorate

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