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Supreme Court of Canada Releases New Decision on GAAR

January-9-2009

Lawyer Alan Bowman, Glenn Ernst, Neil Harris, Jon Northup, Mitchell Sherman, Carrie Smit
Area Tax

Summary

On January 8, 2009, the Supreme Court of Canada released the highly anticipated decision of Lipson v. Canada (“Lipson”). Lipson is essentially the second Supreme Court of Canada decision to address the application of the General Anti-Avoidance Rule (“GAAR”) contained in the Income Tax Act (Canada) (the “Act”). Lipson dealt with the deduction of interest in the context of borrowings used directly to acquire income producing property where the proceeds are effectively used to purchase non income producing property. Although an earlier decision of the Supreme Court in Singleton v. Canada held that somewhat similar transactions were permissible under the Act, the application of GAAR was not considered in that case. While the Supreme Court of Canada in Lipson ultimately found in favour of the Minister of National Revenue (the “Minister”) (in a 4:3 split decision) the reasons delivered by LeBel, J. on behalf of the majority can be regarded as being favourable to taxpayers in several respects.

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