Federal Court of Appeal strongly rejects CRA’s broad interpretation of s. 95(6)

Published by Ian Gamble

In Lehigh Cement Limited v. The Queen, 2014 FCA 103, the Federal Court of Appeal strongly rejected the CRA’s broad interpretation of the anti-avoidance rule in s. 95(6).  The Court held that the rule is narrowly targeted at a particular species of tax avoidance: namely, share acquisitions or dispositions whose dominant purpose is the manipulation of shareholdings to either meet or fail the bright-line tests for “foreign affiliate”, “controlled foreign affiliate”, or related-corporation status within the foreign affiliate scheme (paragraph 56).  Taxpayers study tax provisions closely to manage and plan their affairs intelligently; accordingly, courts must interpret clear provisions in a way that promotes consistency, predictability and fairness (paragraph 41).  The CRA’s (incorrect) interpretation of s. 95(6) would have given the CRA a standardless discretion to decide which transactions are acceptable and which are not (paragraphs 63 and 67).  This would be contrary to fundamental principle because it would raise the spectre of similarly-situated taxpayers being treated differently for no objective reason (paragraph 64 and Bronfman Trust v. The Queen, [1987] 1 S.C.R. 32 at page 46).