The general anti-avoidance rule (GAAR) in section 245 of the Income Tax Act is about drawing a line between legitimate tax minimization and abusive tax avoidance. However, the GAAR does not provide guidelines for determining whether a particular transaction is legitimate or abusive. In this article, the author argues that economic substance is a useful standard for drawing the line. It is not only called for by Parliament through the enactment of the GAAR, it is also justified on theoretical grounds, and is consistent with the textual, contextual, and purposive approach to statutory interpretation. Moreover, the author argues, economic substance is the best method for balancing conflicting policy concerns in Canadian income tax law. The Supreme Court of Canada also recognized the relevance of economic substance in the recent Canada Trustco decision. However, economic substance is a relatively new concept in Canadian tax law. The article advances our understanding of this concept by addressing four questions: (1) Why should economic substance analysis be relevant in GAAR cases? (2) What does “economic substance” mean? (3) What are the relevant factors in determining the economic substance of transactions? (4) How can an economic substance analysis be applied in GAAR cases?