Tax Controversy and Dispute Resolution: Tax Memo

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The FCA Decision in Antle

The Federal Court of Appeal (FCA) decision in Antle v. The Queen included comments on the application of the sham doctrine. Although not a significant departure from the established law, these comments may encourage the Canada Revenue Agency (CRA) to raise sham arguments more frequently.

This case involved a “capital property step-up strategy” — a series of transactions that started with a gift of shares by the taxpayer to a Barbados spousal trust. The trust then sold the shares to the taxpayer’s wife, and the wife immediately sold them to an arm’s length party. These transactions essentially allowed the taxpayer to dispose of his shares without realizing a capital gain that was taxable in Canada, unless they were legally ineffective, a sham or subject to the general anti-avoidance rule (GAAR).

The Tax Court of Canada (TCC) held that the transactions were not legally effective, because the trust was not validly constituted. It reviewed the circumstances surrounding the transactions, concluding that the taxpayer did not intend to create a trust. On the other hand, the TCC found that the transactions would not have amounted to a sham, but did find that GAAR would have otherwise applied.

On appeal, the FCA agreed with the TCC’s conclusion that the trust had not been validly constituted, but went on to discuss the TCC’s sham analysis. The FCA chose not to address the GAAR position.

Read this Tax Memo to get the background and our Tax Controversy and Dispute Resolution group’s observations.