For each of the below independent situations, determine whether the General Anti-Avoidance Rule (GAAR) could potentially apply:

1. Jake transferred his unincorporated business to a corporation primarily to obtain the benefit of the Small Business Deduction.
2. Charlie plans to sell a vehicle used in his business to James. The UCC of the vehicle is $10,000 and the FMV is $15,000 – thus Charlie will recognize a $5,000 recapture on sale. Charlie sets up a corporation and transfers the vehicle to the corporation under Section 85, setting an elected amount of $10,000. He receives shares as consideration with an ACB of $10,000 and FMV of $15,000, in accordance with the rules of s. 85. Instead of selling the vehicle directly, he immediately sells the shares of the company to James, and recognizes a capital gain of $5,000.
3. 
   
4. Peter works as a technician for a local IT firm. He incorporated Petra Inc., a CCPC, and became an owner-manager of the company. Petra Inc. provided the same services to the IT firm that Peter provided previously, and the IT firm paid Petra Inc. a service fee similar to the salaries that Peter used to obtain. Peter engaged in these transactions in order to take advantage of the tax deferral available to corporations.
5. 
   
6. Production Inc., a CCPC, paid its shareholder-manager Herb a reasonable salary of $250,000. This reduced the corporation’s income to $500,000 for the taxation year, thus all of the income is subject to the Small Business Deduction. Assume that Production Inc. is located in a province where the tax rate on non-SBD income is subject to a 27% tax rate. Thus, there are ultimately tax savings associated with a corporation earning non-SBD income.

Answer rating: 100% (QA)

Heres an analysis of each situation in relation to the General AntiAvoidance Rule GAAR 1 Jake transferring his unincorporated business to a corporatio... View the full answer