

Tax Shelter Related Issues - What to Look Out For
Tax Shelters are the stuff of legend. Often times these instruments are publicized in the media for providing tax evasion strategies to the extraordinarily rich. On the other hand, illegitimate tax shelters use of tax law, inevitably earn the wrath of GAAR (General Anti Avoidance Tax Rules designed to ferret this behavior out) from CRA and the public at large.
GAAR: General Anti-Avoidance Revisited
General Anti Avoidance Rule was enacted in 1987 to combat abusive tax avoidance transactions and arrangements which technically complied with Income Tax Act. GAAR is meant to stop these abusive practices which reduce the CRA’s amount of tax revenue. GAAR’s discussion can assume reams of pages. Suffice it to say that one can comply with GAAR by conducting bona fide transactions with a legitimate business objective in mind. If one’s primary objective is just avoidance of tax, and transactions do not make any commercial business sense, then the road to GAAR violation opens up. For tax shelters, these are general principles to keep in mind, as GAAR can easily apply its claws to tax shelters.
It is important to note that tax shelters are actually in various governmental taxation systems worldwide. This is because despite the various negative connotations associated with them, tax shelters serve a particularly important function, to minimize tax liabilities effectively legally, often so that the recipient can use these funds for productive, income earning business ventures, or to support a noble social cause. Case in point is the RRSP Registered Retirement Savings Programs. Effective utilization of RRSP enables millions of Canadians to defer higher marginal tax rates during their prime earning years, while using the invested funds to save for their golden retirement years. RRSP serves as an important retirement payment plan for Canadians and is a valid use of a tax shelter.
Mass Market Tax Shelter Schemes Do Not Work!
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