Justin Kutyan

The appellant, Stonehouse Group Inc., appealed a motion judge's decision denying enhanced refund interest on an overpayment of provincial tax.

The overpayment resulted from a disallowed loss carry back under the Corporations Tax Act, which was later reversed.

The motion judge interpreted s. 79(7) of the Act as precluding enhanced interest for loss carry back refunds.

The Court of Appeal allowed the appeal, finding the motion judge's interpretation incorrect.

The Court held that such an interpretation would unfairly deny any refund interest, contrary to the legislative intent of the interest payment provisions, which aimed to balance the rights of government and taxpayers and provide enhanced interest for compelled overpayments arising from disputes.

The applicants sought rectification of transaction documents following the acquisition of a telecommunications partnership in order to allow executives who exercised stock options to qualify for the 50% stock option deduction under the Income Tax Act.

The closing structure caused the option shares to be acquired by non‑arm’s‑length vendors rather than by the purchaser, leading the Canada Revenue Agency to deny the deduction.

The court held that rectification requires proof of a prior agreement and common intention that the written instrument failed to record, or strict conditions for unilateral mistake.

The evidence did not establish that the tax treatment of the executives was a shared or material intention of the contracting parties when the agreement was executed.

Unexpected tax consequences alone could not justify retroactively restructuring a completed transaction through rectification.