Executive Summary: The Tax Court drew a hard line: choosing non-CCPC status before a sale is not abuse, at least until Parliament closed the door in 2022.
GAAR outcomes diverge: DAC shows the Tax Court applying GAAR narrowly; Deans Knight shows the Federal Court of Appeal applying it more broadly. Executives must track which signal aligns with their fact pattern.
Legal opinions are strategic assets: Opinions on GAAR exposure are essential for both risk assessment and defence credibility, but only if the organization implements them.
System lens: The Tax Court often emphasizes Parliament’s chosen lines; the Federal Court of Appeal has, at times, been more willing to test those lines through GAAR’s lens. See our Dean's Knight commentary to understand how courts have expanded GAAR beyond text.
DAC, a CCPC, acquired shares of Soberlink on a s. 85 rollover. Before selling, it continued into the BVI. That move stripped CCPC status but left DAC Canadian-resident. DAC sold the shares, realized a capital gain, and paid the non-CCPC general corporate rate (15%), avoiding refundable tax.
CRA reassessed using GAAR, arguing the transactions abused the CCPC definition, the refundable tax regime, the general rate reduction, and the continuance deeming rule.
Justice D’Arcy accepted that DAC gained a tax benefit and carried out avoidance transactions. The question was abuse. The court found none:
The CCPC definition is a dividing line. DAC simply crossed it.
The refundable tax regime applies only to CCPCs. Parliament accepted deferral opportunities in other private corporations.
The general rate reduction keeps the top federal corporate rate at 15%. Applying it here matched that policy.
The continuance rule was designed to prevent technical glitches, not to bar this planning.
The case reinforces a broader truth: CRA challenges involving GAAR are not uniform. From a business leader’s perspective, two aspects stand out:
GAAR outcomes often turn on whether the corporate structure and record fit Parliament’s lines.
DAC sits against Deans Knight: one case where GAAR expands, one where it doesn’t. The practical question for executives is which signal feels closer to their fact pattern — and how that alignment might be viewed first at the Tax Court, and later by the Federal Court of Appeal, given the different perspectives each court has shown in GAAR cases.
Update: The Crown’s appeal is scheduled for October 7, 2025.
Case reference: DAC Investment Holdings Inc. v. The King, 2024 TCC 63 (under appeal)