In Canada, in order to promote the vibrancy of domestically produced film and television and limit the predominance of imported American programming in that country, tax incentives were given to companies that produced Canadian television programs.
[2] However, a few individuals stretch the limits of legal interpretation of the income tax laws.
Tax shelters were intended to induce good behaviors from the masses, but at the same time caused a handful to act in the opposite manner.
To achieve this similar tax result, it can be necessary to look at the substance of the transaction rather than the formal steps taken to implement it.
This doctrines questions whether the purported economic activity would have occurred absent the tax benefits claimed by the taxpayer.
The transaction must change, in a meaningful way, the taxpayer's economic position apart from the Federal income tax effects, and (B) the taxpayer must have a substantial purpose for entering into such transaction, apart from its Federal income tax effects.
[5] Under the Code, the term "economic substance doctrine" is defined as the common law doctrine under which Federal income tax benefits with respect to a transaction are not allowable if the transaction does not have economic substance or lacks a business purpose.