Sham Transaction

Plain meaning

A transaction or arrangement where parties present legal rights or obligations that do not reflect what they actually intended.

Also called

Key points

• A sham generally requires an element of deception about the parties' true legal rights or obligations.
• It is different from ordinary tax planning where legal documents accurately reflect what the parties intended.
• The burden and evidentiary record are important because sham is a serious allegation.
• If a transaction is found to be a sham, the tax result can be based on the true arrangement rather than the paper form.

Why it comes up

Sham allegations can appear in tax litigation where the Crown argues documents do not reflect the real arrangement.