Analysis of Misuse and Abuse in terms of the South African General Anti-avoidance Rule: Lessons from Canada

Abstract

In terms of the South African general anti-avoidance rule, a transaction that misuses or abuses the provisions of the Income Tax Act may be disregarded for tax purposes. The misuse or abuse provision, along with the general antiavoidance rule (GAAR), has not yet been judicially considered. It is argued that the provision brings further uncertainty and breadth to the general antiavoidance rule. It calls for a purposive interpretation of tax legislation. This approach, however, creates uncertainty regarding the determination of purpose. In Canada, from which the provision was borrowed, the courts initially applied a policy approach in determining purpose but this disadvantaged the revenue authorities in a series of cases. The Minister of National Revenue was required to present a clear and unambiguous policy which in reality could not be found. The thrust of this article is to show that the misuse or abuse concept could turn out to be a lateral development in the South African GAAR because of the uncertainty it carries and if lessons on its application are not learned from the Canadian experience.