What does GAAR mean in MORTGAGE

What is GAAR?

GAAR stands for the General Anti-Avoidance Rule and it is an important concept for any business operating within a local jurisdiction because it helps determine if an arrangement was created for valid business reasons or as a tax avoidance measure. It applies to all sorts of structures including trusts, partnerships, companies and other entities. All arrangements must be executed legally by ensuring transactions are both reasonable and not solely aimed at reducing taxes or avoiding paying them altogether. As such, GAAR can be used as a tool to catch businesses avoiding their obligations under tax law. For example, if a company were to set up an offshore trust fund strictly for the purpose of tax evasion or avoidance, then the Government could use GAAR as a legal basis to pursue them for unpaid taxes.

How Does GAAR Work?

GAAR is designed to target those who deliberately attempt to evade or reduce their tax liabilities without due consideration of applicable laws and regulations. To ensure compliance with GAAR principles, taxpayers are expected to demonstrate that all financial arrangements are made based on commercial considerations that have nothing to do with reducing their taxable income or evading certain levies and payments required by law. If a taxpayer cannot provide evidence that their actions were done solely for business purposes then they may be subject to scrutiny under GAAR provisions which can result in penalties or charges being imposed on them if found guilty of wrongdoing. Generally speaking when it comes to cases related to alleged GAAR violations prosecutors look towards two factors—intent and effect; meaning was there intent behind the activities undertaken (intention) plus did the activities have an effect on reducing taxpayer’s overall liability?