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.
