Profitable Inc. was in the process of entering into a contract with a supplier in order to guarantee a stable long-term relationship. In reviewing the terms of the contract, the CEO made some changes to make the arrangement more tax efficient. TheIncome Tax Act(ITA) was vague on the arrangement that was undertaken.Those changes have resulted in significant tax savings to Profitable Inc.

Does the general anti-avoidance rule (GAAR) apply to the transactions from this contract?

Question 3 options:

GAAR applies because of the significant tax benefits.

GAAR applies because the primary intention was a tax benefit.

GAAR does not apply because there was an abuse of the ITA taken as a whole.

GAAR does not apply because there were business reasons for the contract.