CRA GAAR / Aggressive Planning Audit — Montreal CPA Firm Near You: Substance Over Form

A CRA GAAR (General Anti-Avoidance Rule) Audit is triggered when the Canada Revenue Agency suspects a transaction’s legal form was arranged primarily to obtain a tax benefit. These reviews focus not on arithmetic but on intent — whether the structure, reorganization, or series of steps has true economic substance.
Mackisen CPA Montreal represents corporations, trusts, and individuals in GAAR audits and objections, proving that each transaction reflects legitimate business purpose rather than artificial tax avoidance.

Legal Foundation

Law: Income Tax Act s. 245 (General Anti-Avoidance Rule); Tax Administration Act (QC) s. 1079.10 (QAAR equivalent).
Jurisprudence: Canada Trustco Mortgage Co. v. Canada (2005 SCC) — set the three-part GAAR test: (1) tax benefit, (2) avoidance transaction, (3) abuse or misuse of the Act’s object and spirit.

Learning insight: CRA auditors don’t penalize creativity — they penalize transactions that lack commercial purpose. Mackisen CPA proves yours has one.

Why CRA Targets Aggressive Tax Planning

The CRA’s Aggressive Tax Planning Division uses data analytics to detect transactions that minimize tax without real economic change. Triggers include:

• Share reorganizations or “butterfly” splits that extract surplus tax-free.

• Use of loss corporations to absorb profits without ownership change.

• Intra-family transfers that convert dividends into capital gains.

• Artificial interest or royalty structures with no arm’s-length pricing.

• Transactions routed through tax-haven entities with no real operations.

Learning insight: CRA does not challenge planning that works — it challenges planning that only looks like it works.

How a GAAR Audit Unfolds

1. CRA identifies the transaction series in the T2/T3 filings.

2. A GAAR Proposal Letter is issued, outlining intended reassessment.

3. Taxpayer may respond within 30 days with legal and economic justifications.

4. The file goes to the GAAR Committee in Ottawa, comprising senior CRA and Finance Canada officials.

5. A final decision issues — either no GAAR applied or reassessment with penalties.

Learning insight: Once the GAAR Committee is involved, it’s no longer about tax preparation — it’s about case law. Mackisen CPA builds that case.

What Mackisen CPA’s GAAR Defense Includes

• Transaction Mapping: Every step documented with legal purpose and business logic.

• Economic Substance Analysis: Proof of commercial risk or benefit beyond tax savings.

• Comparative Benchmarking: Show that similar arm’s-length firms undertake such structures.

• Legal Brief Preparation: Collaboration with tax counsel for interpretive arguments.

• GAAR Committee Submission: Complete package responding to each criterion in Canada Trustco.

Learning insight: Under GAAR, a transaction is not judged by how it was filed but by why it was done.

CRA vs. Taxpayer: The Interpretation Gap

CRA interprets GAAR as a moral boundary — taxpayers must prove their planning reflects legitimate commerce. Common defense errors include:

• Relying solely on technical compliance without documenting purpose.

• Failing to present economic risk or capital at stake.

• Not addressing the “object and spirit” of each relevant section.

• Missing contemporaneous legal opinions or board minutes.

Learning insight: A GAAR defense fails when it starts with a spreadsheet instead of a story.

Educational Example

A Québec group reorganized shareholdings to convert dividends into capital gains via a holding company. CRA alleged s. 84.1 abuse and applied GAAR. Mackisen CPA demonstrated the structure’s true business motive — succession planning and family asset protection. GAAR was withdrawn and no penalties assessed.

Learning insight: Purpose proves substance. Every GAAR defense is a narrative about why a transaction was commercially necessary.

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Learning insight: GAAR audits are won on intention and evidence. Your intention creates credibility; Mackisen CPA builds the evidence.

Real Client Results

• A Montréal manufacturer avoided a $1.8 million reassessment after Mackisen CPA proved its inter-company royalty rates were commercially justified.

• A family-owned holding company had GAAR proposals dropped when we showed the reorganization supported succession and liquidity goals.

• A tech exporter prevented double taxation after we coordinated CRA and foreign tax authority positions under the OECD Mutual Agreement Procedure (MAP).

Learning insight: GAAR is not a penalty for planning — it is a test of proof. Mackisen CPA turns proof into protection.

Why Mackisen CPA Montreal

For over 35 years, Mackisen CPA Montreal has guided clients through complex CRA and Revenu Québec audits involving GAAR, transfer pricing, and corporate reorganizations. Our firm integrates CPA precision with legal strategy, working alongside top tax counsel to defend transactions before the GAAR Committee or Tax Court.
We prepare comprehensive technical and economic reports that document substance, intent, and commercial logic — ensuring CRA sees the business purpose behind every plan.

Learning insight: In GAAR defense, truth is not a sentence — it’s a structure. Mackisen CPA builds yours so it stands under scrutiny.