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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?
In December 1996 a mortgage lender, Canada Trustco Mortgage Company (CTMC), bought a batch of trailers from Transamerica Leasing at their fair market value of $120 million, using its own money and a loan of about $100 million from the Royal Bank. It leased the trailers to a company called Maple Assets, which subleased them straight back to Transamerica, the original owner. The paper trail went in a circle. For its 1997 tax year, CTMC claimed a capital cost allowance (CCA) deduction of $31,196,700, which is the tax version of depreciation, against its other leasing income.
The Minister of National Revenue reassessed and denied the claim, arguing first that CTMC never got title to the trailers and, if it did, that GAAR should strike down the deduction. The Tax Court of Canada set the reassessment aside, and the Federal Court of Appeal agreed. The Crown appealed to the Supreme Court and lost there too.
Why does a deal like this matter if you don’t own a fleet of trailers? Because the ruling set out how the CRA and the courts must test any arrangement the CRA calls abusive, and that test still shapes everyday 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 a three-step test. Here’s the order, in plain words.
| Step | What it asks | Who carries the burden |
|---|---|---|
| Tax benefit | Did the transaction, or a series of them, produce a tax benefit? | The taxpayer has to refute it |
| Avoidance transaction | Was it an avoidance transaction under s. 245(3), meaning it wasn’t arranged primarily for real purposes other than getting the tax benefit? | The taxpayer has to refute it |
| Misuse or abuse | Does the result misuse the provisions, or abuse them read as a whole (s. 245(4))? | The Minister has to establish it |
In this case the Crown accepted the Tax Court’s finding that there was a tax benefit and an avoidance transaction, so everything turned on the third step. The Court said a 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 Court found this deal wasn’t so different from an ordinary sale-leaseback as to fall outside the purpose of the CCA provisions.
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.
Is the 2005 test still the whole story?
Not quite. Parliament has amended section 245 since 2005, and the current wording of the avoidance transaction step asks whether obtaining the tax benefit is one of the main purposes of the transaction, which is a lower bar than the “primarily” wording the Court worked with. So Canada Trustco remains the foundation for how courts read GAAR, but anyone looking at a recent arrangement should read the section as it stands today and not rely on a 2005 summary.
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. Check the decision itself before you cite it.
The sources behind this page
The wording of section 245 is from the Income Tax Act on the Justice Laws website, read in October 2026. The case name, citation, release date, facts and outcome come from the text of the Supreme Court judgment itself. 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.