Canadian Lawyer

BY PHILIP SLAYTON TOP COURT TALES Pulling the rug out Just when you thought the SCC was making good business law decisions, along comes the securities reference. police powers, and other headline-grab- bing stuff. It still resolves, for example, dull tax disputes between the taxpayer and his avaricious government. It still deals with traditional constitutional fights between different levels of gov- ernment (there is a surprisingly large number of these cases — they're almost the court's bread and butter). Sometimes these apparently tedious decisions, easy to overlook, go to the heart of the coun- try's economic and business fabric. One such case is Copthorne Holdings T Ltd. v. Canada. Decided last December, Copthorne is about the Income Tax Act's General Anti-Avoidance Rule, known to tax aficionados and legal geeks as GAAR. (Please try to stay awake.) GAAR is intended to stop abusive tax-driven transactions technically permitted by the Income Tax Act but whose primary purpose is to avoid taxation. Bad boy Copthorne Holdings had engaged in naughty transactions of this sort, but the tax department wasn't having any of it, invoked GAAR, and denied Copthorne the tax benefits it had anticipated. Copthorne challenged the ruling, but lost in the courts below. The Supreme Court affirmed the lower courts in a unanimous and clear judgment deliv- ered by Justice Marshall Rothstein on behalf of a nine-member panel. The director of the Canada Revenue Agency has said the decision will not have much of an effect on how the CRA goes about its business. Most tax practitioners are skeptical and expect beefed-up CRA use of GAAR. After all, although recog- nizing GAAR's limitations, in Copthorne the Supreme Court strongly endorsed the rule and its application. Tax probity was affirmed. You can bet that the CRA will be vigorously using all the tools at its dis- posal, including this one. Copthorne is quite different from Lipson v. Canada, a GAAR case decided by the Supreme Court in 2009. When Lipson was handed down, Canadian tax guru Vern Krishna called it "the most 16 M A RCH 2012 www. CANADIAN Lawyermag.com significant tax decision in 70 years." In a 4-3 decision, petulant judges divid- ed philosophically over tax policy and took bad-tempered swipes at each other. Some judges (the bare majority) favoured GAAR and the government. The rest did not apply the rule and stood in solidarity with the taxpayer. But now, in Copthorne, the Supreme Court seems to have got its act together. The judges are all rowing in the same direction. The philosophical divide has magically disappeared. Copthorne, unanimous, clear, and he Supreme Court doesn't just decide those fancy, beloved by the press Charter of Rights cases about civil liberties, pIERRE-pAuL pARISEAu

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