Minding the Gap in Tax Interpretation : Does Specificity Oust the General Anti-Avoidance Rule Post-Copthorne?

Following the Supreme Court of Canada’s divided decision in Lipson, the Tax Court of Canada and the Federal Court of Appeal have struggled with the role of the Income Tax Act’s specific anti-avoidance rules in the context of the misuse and abuse analysis when applying the general anti-avoidance rule (the GAAR). Interestingly, this problem was predicted at the time of the GAAR’s advent and has not yet been dealt with definitively and convincingly by the courts. The author suggests that, in Copthorne, the Supreme Court missed a chance to provide greater guidance on how to conduct the misuse and abuse analysis and left taxpayers with many unanswered questions. What weight should be afforded to specific rules? What is the proper role of the GAAR? And, by implication, is the GAAR improperly applied to abusive transactions that fall outside of specific anti-avoidance rules, or should its application be limited to novel situations where no specific rules yet apply? The author argues that in situations where no specific rule applies to an avoidance transaction that runs contrary to the object and purpose of the Act, the GAAR may have a residual purpose. However, he contends that it should not be used as a second chance to find a taxpayer’s conduct abusive, particularly where a specific rule applies or is relied upon by the taxpayer. It is the role of Parliament, and not the judiciary, to amend a specific rule – or the GAAR itself – if Parliament is unsatisfied with the results of their application