Translation disclaimer
This translation was prepared by Tax Interpretations Inc. The CRA did not issue this document in the language in which it now appears, and is not responsible for any errors in its translation that might impact a reader’s understanding of it or the position(s) taken therein. See also the general Disclaimer below.
Principal Issues: Whether the GAAR may apply to the series of transactions described in paragraph 1.33 of the S3-F6-C1 Folio?
Position: No.
Reasons: Paragraph 245(2) would not apply to the restructured borrowing described in paragraph 1.33 of the S3-F6-C1 Folio.
FINANCIAL PLANNING ROUNDTABLE OCTOBER 9, 2025
2025 APFF CONFERENCE
3. Interest deductibility and general anti-avoidance rule
The general anti-avoidance rule ("GAAR") was modified by Bill C-59 (footnote 1). The introduction of subsection 245(4.1) of the Act, among others, to deal with a transaction or series of transactions that lack substantial economic substance, is creating a great deal of uncertainty for practitioners and taxpayers alike, even with respect to transactions that, until now, have been recognized as part of legitimate tax planning.
In Income Tax Folio S3-F6-C1 (footnote 2), the CRA states in paragraph 1.33 that a taxpayer "may restructure borrowings and ownership of assets to meet the direct use test" and gives the following example:
“Ms. A owns 1,000 shares of X Corp., a corporation listed on the TSX. Ms. A also owns a personal use condominium that was financed with borrowed money. At this point, the direct use of the borrowed money was to acquire the condominium. Ms. A may choose to sell the 1,000 shares of X Corp., use the proceeds from the sale of these shares for any purpose, including paying down the borrowed money used to acquire the condominium, and subsequently obtain additional borrowed money to acquire another 1,000 shares of X Corp. At this point, the additional borrowed money is directly used to acquire 1,000 shares of X Corp.”
Question to the CRA
Can the CRA confirm that GAAR would not apply to this series of transactions?
CRA Response
We are of the view that the series of transactions, as described in paragraph 1.33 of Income Tax Folio S3-F6-C1, would not engage the application of the GAAR.
It should be remembered, however, that the application of the GAAR is based on an analysis of all the facts relating to a particular situation. All the facts of a series of transactions must be examined and may influence the application of the GAAR. Consequently, our answer might be different if the series of transactions described in paragraph 1.33 of Income Tax Folio S3-F6-C1 included other transactions.
François Mathieu
October 9, 2025
2025-106840
FOOTNOTES
Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:
1 Bill C-59, An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 21, 2023 and certain provisions of the budget tabled in Parliament on March 28, 2023, 1st Session, 44th Parliament, 2024 (Can.), Royal Assent received June 20, 2024.
2 CANADA REVENUE AGENCY, Income Tax Folio S3-F6-C1, "Interest Deductibility", August 8, 2024 ("Income Tax Folio S3-F6-C1")
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© His Majesty the King in Right of Canada, 2025
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté le Roi du Chef du Canada, 2025
Email this Content