The Canadian Supreme Court has struck a blow against the government's General Anti-Avoidance Rule (GAAR) by ruling that transactions structured to legitimately minimise tax payments do not constitute a breach of the law.

In the case of the Queen v. Canada Trustco Mortgage Company , the transaction at issue was a leveraged sale-leaseback which resulted in the taxpayer having minimal economic risk.

Finding in favour of the taxpayer, the Supreme Court decided that the transaction in question was not structured illegally and, therefore, found that it did not fall outside the "object, spirit or purpose" of the capital cost allowance provisions of the Tax Act.

Crucially, the Court also stated that the Tax Act continues to "permit legitimate tax minimization" and that the GAAR should be applied in a "consistent, predictable, and fair" manner to provide certainty for the taxpayer.

Introduced in 1988, the GAAR was intended to act as a catch-all anti-tax avoidance measure which compelled taxpayers to comply not just with the letter of the law, but with the spirit of the tax legislation.

"It’s an extremely important case,” observed Alan Wheable, senior vice-president of taxation for Toronto-Dominion Bank, the parent company of Canada Trustco Mortgage Company.

“I think it’s reassuring to both regular taxpayers and the government, because I think it indicates that the government can’t do whatever it wants [even though] there are definite limits on taxpayers," he added.