The 2023 Federal Budget released draft legislation amending the General Anti-Avoidance Rules (“GAAR”) that would significantly impact any transactions the government finds abusive. After an initial consultation period, updated draft legislation was released on August 4, 2023 and was open to consultation until September 8, 2023. At the time of this writing, these comments are still outstanding for public review. If enacted as drafted, these new rule changes will come into effect on January 1, 2024.
What’s changing:
- Significant tightening of the language within GAAR that would catch potentially abusive transactions.
- Widening the reassessment window from 3 to 6 years for possible audits of these transactions
- Applying a 25% tax penalty on any tax savings associated with the plan. Penalties will not apply to transactions disclosed to CRA in advance.
This will make it easier for CRA to reassess taxpayers under GAAR and assess significant penalties on top of paying back the tax savings and interest. Taxpayers considering any strategies, such as surplus stripping, should know that CRA can apply these new GAAR rules. Therefore, it would be wise to review the timing and consider implementing before January 1, 2024.
