Student Paper Award

The Canadian Tax Foundation-Fasken Martineau Dumoulin Award for Ontario 2011-12

Michael Royal

The Canadian Tax Foundation is pleased to announce that Michael Royal is the winner of the Canadian Tax Foundation-Fasken Martineau DuMoulin Award for the best Ontario paper of 2011-12 dealing with an aspect of Canadian taxation.

Mr. Royal’s paper, “Improving the Current Approach to Subsection 245(4): Focusing on Conditions of Application and Specific Anti-Avoidance Rules to Determine the intended Boundaries of a ‘Tax Benefit,’” was written for the Juris Doctor Program at the University of Western Ontario. Mr. Royal graduated with distinction from the Juris Doctor program at the University of Western Ontario, Faculty of Law. He also holds a Bachelor of Business Administration in accounting. Michael is currently completing a judicial clerkship at the Tax Court of Canada.


In Canada Trustco Mortgage Co v Canada, 2005 SCC 54, and Mathew v Canada, 2005 SCC 55, the Supreme Court of Canada provided guidance on how to assess an application of the GAAR by the Minister. In particular, McLachlin CJ and Major J considered subsection 245(4), which requires the Minister to prove that the “avoidance transaction” would result in a “misuse” or “abuse” if the GAAR were not applied to that transaction. This approach to subsection 245(4) requires the Minister to first prove the “object, spirit or purpose” of the provision that the Minister asserts was “misused” or “abused” by the taxpayer. The Minister must then prove that the “avoidance transaction” undertaken by the taxpayer frustrates Parliament’s intent in enacting that provision, and thus defeats that “object, spirit or purpose”. Although this approach is reasonably clear and reliable, improvements to it can and should be made.

Courts can simplify this approach by determining the intended boundaries of the particular “tax benefit.” Rather than searching for Parliament’s intent in enacting the provision in question, the court should consider whether Parliament manifested an intent to deny that benefit in certain circumstances. This intent may be manifest in the conditions of application of that provision or in a specific anti-avoidance rule related to that benefit. Once the court has identified the circumstances in which Parliament clearly intended to deny the “tax benefit”, the court must determine whether the taxpayer derived that benefit in one of those circumstances. This approach is simpler and more-principled than the current approach. It would also reduce much of the uncertainty surrounding the GAAR by increasing the ability to predict whether the GAAR will apply to a particular “avoidance transaction.” As a result, this approach would allow tax planners to design or structure transactions without exposing their clients to an undesirably high level of risk that the GAAR will apply to those transactions.

(April 2013)