General Anti-Avoidance Rule (GAAR)
Generally speaking, the general anti-avoidance rule (GAAR) applies when a transaction complies with the letter of the law while abusing its spirit (in other words, the legislator's intention).
In order for the GAAR to apply, the following elements must be present:
- the transaction results in a tax benefit;
- the transaction constitutes an avoidance transaction, in that it was not conducted for bona fide purposes (obtaining a tax benefit is not a bona fide purpose); and
- the avoidance transaction is abusive.
The three elements must be present for a tax benefit to be denied.
Submissions must be reliable, detailed and credible enough for Revenu Québec to investigate the claims in them. The information must not be known by Revenu Québec or speculative.
- Example 1: “I know the details of a corporate restructuring meant to reduce income tax, but I can't tell whether the series of transactions is abusive.”
Comments: This type of transaction may be covered by the GAAR. The informant can therefore file form LM-8-V so that we can determine whether the information in it is eligible.
- Example 2: “I have reason to believe that a taxpayer reduced or avoided paying income tax on the sale of a business, but I don't know the details of the transaction.”
Comments: Only submissions containing detailed, credible information are eligible under the program.
That said, if the informant were to file form LM-8-V, we could still evaluate its eligibility. A lack of detail about the transactions is not in itself grounds for the submission to be dismissed, provided the informant can prove that the information is not purely speculative. When we accept such a submission, the informant's reward is based on the quality and usefulness of the information.
- Example 3: “I run a business. A tax professional contacted me to propose an aggressive tax planning scheme. As a result, I'm aware of the transactions and key elements of the planning scheme. I personally refused to implement it, but I have reason to believe that other taxpayers, whose identities I don't know, did not.”
Comments: The informant can file form LM-8-V to report the tax planning scheme, after which we will determine whether the submission is eligible for the program.
Not being able to identify the taxpayers involved is not in itself grounds for the submission to be dismissed, provided the informant can prove that the information is not purely speculative. The informant may still be entitled to a reward. In such a case, the reward may be based on the duties recovered under Québec tax legislation, taking into account the lack of identifying information.