Alisa Catharine Apostle

The applicant and its affiliates carried out a series of transactions in December 2007 designed to realize a tax loss to offset unrealized foreign exchange gains in the same taxation year.

The Canada Revenue Agency disallowed the claimed loss on the basis that section 98(5) of the Income Tax Act applied, rendering the transaction a tax-deferred rollover.

The applicant sought court orders to retroactively alter the transaction to achieve its intended tax purpose, relying on rectification and equitable jurisdiction to relieve against mistakes.

The application judge granted the order, but the Supreme Court's decision in Fairmont Hotels restricted rectification to written agreements.

The Court of Appeal held that the court will not exercise its equitable jurisdiction to retroactively alter corporate transactions to achieve tax objectives, whether characterized as rectification or relief from mistake.

The court also rejected rescission as an available remedy, finding it was not a voluntary disposition but a commercial contract, and that rescission is an all-or-nothing remedy that cannot be used for partial unwinding to achieve a specific tax outcome.

This application sought rectification of a corporate resolution declaring a dividend.

Due to a clerical error, the resolution and Canada Revenue Agency election form were incorrectly dated, resulting in a 60% tax liability under the Income Tax Act instead of the intended tax-free capital dividend.

The court granted the rectification, finding a clear and specific intention to achieve a tax-free distribution that was frustrated by a simple mistake in implementation.