• Stripped Interest Coupon Planning Not Subject to Gaar
  • May 27, 2010 | Authors: Douglas J. Powrie; Stephanie A. Wong
  • Law Firms: Borden Ladner Gervais LLP - Vancouver Office ; Borden Ladner Gervais LLP - Toronto Office
  • On May 17, 2010, the Federal Court of Appeal allowed the taxpayer’s appeal in Lehigh Cement Limited v. The Queen, holding that the general anti-avoidance rule (“GAAR”) did not apply to a series of transactions through which Lehigh’s interest payments on debt held by a related non-resident corporation were paid free of withholding tax to an arm’s length non-resident bank. The debt restructuring was carried out to access the “5/25” withholding tax exemption for interest paid at arm’s length on corporate debt formerly provided under subparagraph 212(1)(b)(vii) of the Income Tax Act (Canada). The 5/25 exemption was replaced in 2008 with a much broader withholding tax exemption for non-participating interest paid to an arm’s length person.