A badly fractured seven-member panel of the Supreme Court of
Canada gave the Canada Revenue Agency its biggest ever GAAR victory
in Lipson v. The Queen (2009 SCC 1).
In a rare 4-2-1 decision, LeBel J. writing for the majority
invoked a new "overall result" analysis to support the
finding of the Tax Court. In dissent, Binnie J. (with whom
Deschamps J. concurred) rejected the approach advocated by LeBel J.
on the basis that the majority's decision did not further the
interests of consistency, predictability and fairness in the tax
system. In a separate dissent, Rothstein J. concurred with much of
the analysis of Binnie J. but went further to hold that the
presence of a specific anti-avoidance rule (subsection 74.5(11))
precluded the use of GAAR to cover the same ground even where, as
was the case in Lipson, the Minister did not rely upon
that specific anti-avoidance rule.
The overall result in Lipson did not come as a surprise
to the professional tax community. A convergence of factors led to
what might be termed a "perfect judicial storm." In the
first place, the decision under appeal was a carefully reasoned
judgment of the Tax Court of Canada. Second, the Supreme Court sat
a seven-member panel because of the retirement of Bastarache J. The
result was that Chief Justice McLachlin, one of the more expert tax
jurists on the Court, did not take part in the decision. Finally,
there was a delay of almost nine months between the hearing of the
appeal (April 23, 2008) and the issuance of the judgment (January
8, 2009). Such a very long delay is usually indicative of serious
divisions within the Court.
The unfortunate result of Lipson is that whatever
clarity emerged from the decision of the Supreme Court of Canada in
Canada Trustco v. The Queen, ( 2 S.C.R. 601) has
essentially been dissipated by this new decision. The majority in
Lipson arguably went much further than the trial
judge's carefully reasoned decision and appears to have
endorsed what many will argue comes very close to a judicial
The future of GAAR now lies in the hands of two remaining judges
of the Supreme Court: the most senior – Chief Justice
McLachlin, and the most junior – Justice Cromwell
(appointed December 22, 2008). Until the Court revisits GAAR there
is no way of knowing how Chief Justice McLachlin and Justice
Cromwell will approach these issues. While there is some reason to
think that Chief Justice McLachlin may lean more in the direction
of Justice Binnie's "consistency, predictability and
fairness" analysis, we as yet know nothing of Justice
Cromwell's approach to income tax issues.
Fraser Milner Casgrain LLP is pleased to provide our clients
with the benefit of years of experience dealing with the
application of GAAR to existing or proposed transactions.
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