Retroactivity and the General Anti-Avoidance Rule

Abstract

The General Anti-Avoidance Rule (the GAAR) was originally introduced in Canadian income tax law in 1988 with prospective effect. The GAAR was amended in May 2005 to broaden its scope (by bringing under its ambit the regulations, treaties, etc.) and to lessen the burden of persuasion faced by the Minister in the misuse or abuse demonstration. What is peculiar about this amendment is that it was explicitly stated to have retroactive effect to the date the GAAR was first in effect - September 12, 1988.

This chapter discusses the retroactive nature of the amendment of the GAAR. It proceeds in three stages. First, it provides an account of the relevant law surrounding the effectiveness and applicability of retroactive legislation in Canada, outlining the general presumption against retroactive legislation and addressing how express terms can override this presumption in many (but not all) contexts. Particular attention is paid to how Canadian courts have approached the application of retroactive enactments to pending proceedings. Second, this background is used to evaluate the Supreme Court of Canada's handling of the amendment of the GAAR in its first GAAR judgment (Canada Trustco). Finally, the chapter closes with a discussion of the policy underlying retroactivity and the GAAR more generally, suggesting that so long as retroactive fiscal legislation is possible (as it is in Canada) it is somewhat curious that so much reliance is placed on the GAAR. Enacting retroactive specific anti-avoidance rules (perhaps with a penalty) is possible and, from a policy perspective, arguably more effective and desirable at curbing aggressive tax avoidance.