Ontario Civil


Rectification or reformation


It was not possible to rectify corporate transaction to retroactively avoid adverse tax consequences

Taxpayer and related entities entered into series of transactions, resulting in taxpayer suffering loss. In its income tax return, taxpayer included in income gains from hedge contracts and deducted corresponding amount in respect of loss realized by its disposition of its interest in partnership. Canada Revenue Agency disallowed taxpayer’s claim for loss on ground that s. 98(5) of Income Tax Act applied. Taxpayer brought application for order rectifying series of transactions to replace them with transactions that dissolved partnership in way that s. 98(5) of Act did not apply. Application judge granted application and found that requirements for rectification were met. Crown appealed, and taxpayer cross-appealed seeking order to permit it to achieve intended tax purpose by way of court’s inherent equitable jurisdiction or equitable rescission. Appeal allowed and cross-appeal dismissed. Judge erred in granting rectification, as recent Supreme Court of Canada decision changed law and restricted scope of equitable remedy to correction of written agreements. Relief sought by taxpayer on cross-appeal was type of correction of error in structuring and implementation of transaction to achieve taxation result that Supreme Court rejected, even though taxpayer called it different name. Supreme Court had concluded that it was not possible to rectify corporate transaction to retroactively avoid adverse tax consequences, and this applied whether it was characterized as rectification or some other equitable remedy. Equitable rescission was not available in these circumstances.

Canada Life Insurance Company of Canada v. Canada (Attorney General) (2018), 2018 CarswellOnt 9963, 2018 ONCA 562, Robert J. Sharpe J.A., Gloria Epstein J.A., and K. van Rensburg J.A. (Ont. C.A.); reversed (2015), 2015 CarswellOnt 17678, 2015 ONSC 281, L.A. Pattillo J. (Ont. S.C.J. [Commercial List]).

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