How does Graycliff avoid the “Form Over Substance” Rule, which is known in Canada as “artificial transaction” designation, on its employee-tax-saving methods [Income Tax Act, Section 245]?
A. Both the “Form Over Substance” Rule in the United States, and Section 245 of the Income Tax Act in Canada allows income tax authorities to disregard tax-saving strategies if they do not have a bona fide business purpose. Graycliff’s main purpose is to facilitate good employment contracts between prospective employers and good employees. Often an employer is reluctant to hire a new employee because of the risk that the new employee will turn out unsuitable and will want a large settlement when the employment is terminated. By shielding employers from litigation by employees whose employment has been terminated, employers can hire new employees without fear of ever having to choose between keeping an unsuitable employee or paying a large settlement. By offering the services of employees without long-term obligations, Graycliff makes it possible for employers to hire risk-free an unproven employee that may prove good. The employee-tax-saving methods used by Graycliff are comparable to
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