Updated Checked by the Tax-Services.ca editorial team How we check
Canada Trustco Mortgage Co. v. Canada, [2005] 2 S.C.R. 601 (also cited as 2005 SCC 54) is the Supreme Court of Canada’s first major ruling on the general anti-avoidance rule, known as GAAR. The Court decided the rule did not apply, so the company kept a large capital cost allowance claim the CRA had tried to deny. The judgment came out on October 19, 2005, alongside a companion case, Mathew v. Canada.
What happened in the Canada Trustco case?
A mortgage company bought a number of trailers and leased them to another company, which leased them straight back to the original owner. The paper trail went in a circle. On the company’s side, the result was a capital cost allowance (CCA) deduction, which is the tax version of depreciation, against income from the trailers.
The CRA reassessed and denied most of the claim. Its argument was that the deal was arranged to get a tax benefit that ran against the purpose of the CCA rules, so GAAR should strike it down. The lower courts sided with the company. The Crown appealed to the Supreme Court and lost there too.
Why does a deal like this matter to you if you don’t own trailers? Because the ruling set out how the CRA and the courts must test any arrangement it calls abusive, and that test still applies to ordinary tax planning.
How does GAAR work under section 245?
GAAR sits in section 245 of the Income Tax Act. A tax benefit is defined there as a reduction, avoidance or deferral of tax or other amount payable. Where the rule applies, the tax results are worked out as is reasonable in the circumstances to deny the benefit.
The Court read the section as setting up three requirements, and the CRA has to show each of them. Here’s the order, in plain words.
| Requirement | What it asks |
|---|---|
| Tax benefit | Did the transaction, or a series of them, produce a tax benefit? |
| Avoidance transaction | Was it an avoidance transaction under s. 245(3), one that would result in a tax benefit, with an exception for deals arranged mainly for other purposes? |
| Misuse or abuse | Does the result misuse the provisions or abuse them read as a whole (s. 245(4))? |
The third step is where Canada Trustco was decided. The Court said the judge has to look at the text of the provisions, their context and their purpose together, to work out why the rules exist. A deduction that follows the purpose of the CCA rules isn’t abuse just because someone planned the deal to save tax. The trailers case landed there.
What does the ruling mean for ordinary taxpayers?
Mostly it means tax planning isn’t a crime. You’re allowed to arrange your affairs to pay less tax, and a lower bill alone doesn’t trigger GAAR. Using your RRSP room or claiming a deduction the law gives you is normal planning.
But the rule exists for a reason. If a structure has no purpose other than the tax saving and it produces a result the law wasn’t built to allow, the CRA can use section 245, and that is the point at which you want a tax lawyer and not a blog post. We’re not offering a view on any real arrangement here.
CCA is the piece most readers might meet. To see how rental income feeds into a tax bill, try the rental income tax calculator. For a company’s own rates, the corporate tax calculator shows a rough combined figure by province, and the capital gains tax calculator covers the other common planning topic, the sale of an asset.
Common misreadings of the decision
One is that Canada Trustco made GAAR toothless. It didn’t. The Court set a test for the rule and found the test wasn’t met on these facts. Later cases apply it, and we haven’t checked them, so we won’t list any.
Another is treating this case as a rule about leases. It wasn’t. The trailers were only the facts. The test is what travels.
A third mistake is reading this page, or any summary, as a substitute for the judgment. The full text of 2005 SCC 54 is on the court’s website and CanLII, and it’s the only version that counts. We couldn’t open those pages with our tools, so the facts above come from reliable legal summaries and the statute. Check the decision itself before you cite it.
Where the information comes from
The wording of section 245 is from the Income Tax Act on the Justice Laws website, read in September 2026. The case name, citation, release date and outcome come from published legal summaries of the Supreme Court decision. This site is not linked with any court or government body, and nothing here is legal advice on a specific plan. To see your own numbers, the income tax calculator is a good place to start.
Frequently asked questions
What did the Supreme Court decide in Canada Trustco?
It held that the general anti-avoidance rule did not apply to the trailer leasing arrangement, so the company kept its capital cost allowance claim.
When was the decision released?
October 19, 2005. It is cited as 2005 SCC 54 and [2005] 2 S.C.R. 601.
What is the general anti-avoidance rule?
It's section 245 of the Income Tax Act. It lets the tax results be worked out as is reasonable to deny a tax benefit from an avoidance transaction that misuses or abuses the Act.
Does saving tax on purpose trigger GAAR?
Not by itself. The third step asks whether the result misuses or abuses the provisions, judged by their text, context and purpose.
Can I rely on this page as legal advice?
No. Read the decision itself, and speak to a tax lawyer about any arrangement where the main point is a tax saving.
Information only. This page is general information, not tax, legal or accounting advice. Tax-Services.ca is an independent publisher: we don't prepare or file tax returns or offer tax services, and we have no connection with the CRA, Revenu Québec, any government or any company named on this page. Check the figures that matter with an official source or a qualified professional.