On Thursday morning the Supreme Court of Canada will release its long-awaited and much anticipated decision in Jordan B. Lipson, Earl Lipson v. The Queen.
Jamie Golombek, now managing director of tax and estate planning at CIBC Private Wealth Management, has been covering this issue for the Advisor Group since the Tax Court of Canada first called “Singleton Shuffle” strategies into question back in 2006.
“The Singleton Shuffle” was named after Vancouver lawyer John Singleton’s 2001 Supreme Court victory, which upheld the notion that you can rearrange your financial affairs in a tax-efficient manner so as to make your interest tax deductible if the funds are borrowed for the purpose of earning income.
Since that 2001 decision, advisors have encouraged Canadians who have non-registered investments to liquidate these investments and use the proceeds to pay off their mortgage. Investors could then obtain a loan secured by the newly-replenished equity in their home, and use the loan for the purpose of earning investment income, thus making the interest on the loan fully tax-deductible.
That plan, essentially endorsed by Mr. Singleton’s Supreme Court win, was implemented without concern by numerous Canadians — that is until a variation of it was attacked by the Canada Revenue Agency in the Lipson case, using the General Anti-Avoidance Rule (GAAR), an overarching rule in the Tax Act that can attack a legitimate tax plan for being a “misuse or abuse” of the rules.
Read Golombek’s past columns on the matter and stay tuned to Advisor.ca for breaking news once the decision is handed down by the court.
Supreme Court hears interest deductibility case, April 23, 2008
Wednesday morning, in a jam-packed Supreme Court of Canada, the country’s highest court heard arguments in the now-infamous Lipson tax case, involving interest deductibility and the General Anti-Avoidance Rule (GAAR). So great was the interest in the case that a line snaked its way outside of the courthouse onto the front steps as anxious observers waited with patient anticipation to pass through the security checkpoint just inside the building and to secure a coveted seat inside the courtroom. Read more.
Up to Speed: Tax changes, Advisor’s Edge Report, January 2008
If you’ve got clients who have used a Singleton-type plan to replace non-deductible debt with tax deductible debt, they may want to pay close attention to the March 2007 General Anti-Avoidance Rule (GAAR) decision in Lipson (2007 FCA 113) where the Federal Court of Appeal shut down a Singleton-type of tax planning arrangement, calling it "abusive." In October, the Supreme Court of Canada granted leave and will hear the case on April 23, 2008. Stay tuned. Read more.
Tax Abuse, Advisor’s Edge Report, April 2007
With the release last month of the Federal Court of Appeal’s decision in the General Anti-Avoidance Rule case Lipson, et al. v The Queen (2007 FCA 113), a common strategy often recommended by advisors, and sometimes known as the "Singleton shuffle," may be a lot harder to implement. Read more.