The SCC's First Two GAAR Cases
Date:
October 19 2005
On October 19, 2005 the Supreme Court of Canada released its first two decisions on what GAAR means and how it is to be applied: Kaulius and Canada Trustco. This paper will review those and two subsequent cases.
In Kaulius a company owned mortgages which had depreciated significantly in value. Thus the mortgages had an inherent loss. The company sold the mortgages to a non-arm’s length partnership. Under subsection 18(13) of the ITA, such a sale preserved the inherent loss in the mortgages. The company then sold its interest in the first partnership to a second, arm’s length, partnership. The second partnership caused the first partnership to sell its mortgages, and the loss flowed up from the first partnership to the second partnership to the partners of the second partnership.
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