Abstract

This article examines whether the ‘sole or main purpose’ requirement of the so-called general anti-avoidance rule (‘the GAAR’) in sections 80A–80L of the Income Tax Act1 is tested subjectively, objectively, or, as some commentators and the recent Tax Court judgment in Mr Taxpayer G2 have suggested, involves a ‘hybrid’ of the two.
The article begins by explaining the distinction between a subjective and an objective approach to the sole or main purpose requirement, before outlining the approach as it previously existed in section 103(1) of the Income Tax Act. It then critically examines the principal arguments advanced in favour of a ‘more objective’ or hybrid test under the new GAAR, after which the arguments in favour of a subjective test are expounded on.
The authors conclude that the sole or main purpose test in the GAAR today must necessarily be binary, meaning it can be either objective or subjective, but cannot be a hybrid of the two. In light of the compelling arguments in favour of such a position, it is ultimately concluded that the test for the sole or main purpose requirement in the new GAAR remains decidedly subjective, and, ironically, that the test applied in Mr Taxpayer G, notwithstanding the Court’s doctrinal endorsement of a ‘more objective’ hybrid test, is in fact the very same subjective purpose test that has applied to the GAAR since its inception.