January 2009


On January 8, 2009, the Supreme Court of Canada dismissed the taxpayer's appeal in Lipson v. The Queen ("Lipson"). The Lipson case analyzes what constitutes abusive tax avoidance for the General Anti-Avoidance Rule ("GAAR"). The majority, consisting of four judges of the Supreme Court of Canada, held that the interest deduction resulting from the refinancing of the shares of a family corporation by the wife of the taxpayer was not abusive viewed in isolation, but that the ensuing tax benefit arising by virtue of the attribution of the interest deduction of the wife of the taxpayer to the taxpayer himself was an abuse and misuse of the provisions of the Income Tax Act (Canada) ("Act"). Three judges strongly dissented from the majority decision.

The decision of the majority of the Supreme Court of Canada has the potential to significantly broaden the scope of the GAAR and create uncertainty for tax planning. Existing tax plans should be re-examined in light of the Lipson decision. Taxpayers will also need to consider this decision in future tax planning.