Key Takeaways
- Benefit without cost invites scrutiny: Courts scrutinize tax structures that offer benefit without tradeoff, and when they find this gap, they side with the CRA and uphold the reassessment.
- Execution gaps prove decisive: In Grenon, paperwork suggested broad distribution, but the facts showed no meaningful participation.
- Paths are predictable: Outcomes like this tend to follow trajectories that could have been mapped from the outset.
The Situation
Mr. Grenon created private income funds to hold in his RRSP, aiming to qualify them as mutual fund trusts and shelter returns from tax. On paper, the structure suggested wide public distribution. In practice, the units were not meaningfully placed with the public.
The Federal Court of Appeal clarified that non-compliance with securities exemptions does not automatically render a tax plan invalid. But it still denied mutual fund trust status, finding that the structure failed to satisfy Regulation 4801's requirement for broad distribution. The plan's form diverged from its reality, and the status was denied.
What Made the Difference
The FCA distinguished between legal form and real-world function. It confirmed that securities law compliance is not determinative for tax purposes. What mattered was execution: the record showed no credible evidence of public participation. Without that, the mutual fund trust provisions could not be satisfied. The decisive gap was between the structure as designed and how it operated in practice.
The Signal for Business Leaders
Courts consistently scrutinize structures that deliver tax benefits without visible tradeoffs. In Grenon, the legal test was clarified, but the absence of real-world execution closed the door. The broader pattern is clear: when a plan relies solely on form, courts look for signs of substance. When the substance is missing, the result tends to collapse.
Case reference: Grenon v. Canada, 2025 FCA 129
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