Michael Taylor

Two family trusts petitioned for equitable rescission of transactions that had resulted in unanticipated income tax liability after the Canada Revenue Agency changed its interpretation of s. 75(2) of the Income Tax Act following the Tax Court's decision in Sommerer.

The majority held that a limiting principle of equity and the principles of tax law stated in Fairmont Hotels and Jean Coutu bar taxpayers from resorting to equity to undo freely agreed upon transactions in order to avoid unanticipated adverse tax consequences arising from the ordinary operation of a tax statute.

The prohibition against retroactive tax planning applies broadly to all equitable remedies, including rescission, not only rectification.

Côté J. dissented, holding that rescission is available in strictly limited circumstances where there is a clear causative mistake of sufficient gravity, and that neither Fairmont Hotels nor Jean Coutu generally precludes equitable remedies in a tax context.

A Luxembourg corporation created as a tax conduit sold shares in its Canadian subsidiary for approximately $680 million, realizing a capital gain in excess of $380 million, and claimed an exemption from Canadian income tax under the Canada-Luxembourg tax treaty's business property exemption for capital gains on shares deriving value principally from immovable property used in a business.

The Minister denied the treaty exemption and argued the general anti-avoidance rule (GAAR) applied because the respondent lacked genuine economic connections to Luxembourg.

The majority held that the Minister failed to discharge the burden of proving abusive tax avoidance, finding that the provisions of the Treaty operated as intended and that Canada had deliberately chosen not to include anti-conduit provisions in the Treaty.

The dissent would have allowed the appeal, finding that the respondent's patent lack of economic connection to Luxembourg frustrated the underlying rationale of the Treaty's allocation of taxing rights.

The appellant Crown challenged court-ordered super-priority priming charges granted to an interim lender, monitor, and directors in CCAA restructuring proceedings, arguing that its deemed trust for unremitted employee source deductions under s. 227(4.1) of the Income Tax Act took priority over those charges.

The majority dismissed the appeal, holding that s. 227(4.1) does not create a proprietary interest in specific debtor assets and that court-ordered super-priority charges under s. 11 of the CCAA are not security interests within the meaning of s. 224(1.3) of the ITA, so no conflict arises between the two statutes.

The concurring justices agreed there was no conflict but relied on the CCAA's remedial flexibility and s. 6(3)'s requirement that the Crown be paid in full under any plan of compromise.

Four justices dissented, concluding that Parliament's use of broad notwithstanding language in s. 227(4.1) granted the Crown's deemed trust absolute priority over all claims including CCAA priming charges.

The appeal was dismissed with costs, Abella, Moldaver, Brown and Rowe JJ. dissenting.

A provincial Crown corporation (BCI) created to provide investment management services to public sector pension plans held pooled investment portfolio assets in trust.

The federal Crown argued that BCI was required to collect and remit GST on costs recovered from those portfolios under the Excise Tax Act.

The majority held that s. 125 of the Constitution Act, 1867 renders the relevant ETA provisions constitutionally inapplicable because BCI, as a provincial Crown agent, holds legal title to the portfolio assets and imposing GST would tax Crown property.

On the cross-appeal, the Court unanimously held that the Reciprocal Taxation Agreement and the Comprehensive Integrated Tax Coordination Agreement are legally binding intergovernmental agreements and that BCI is subject to them by virtue of s. 16(6) of the Public Sector Pension Plans Act.

Both the appeal and cross-appeal were dismissed.

Wagner C.J. dissented in part, finding that s. 125 immunity should not extend where private pension boards are the beneficial owners and the real impact of the tax falls on them.

The Court allowed the appeal, adopted the dissenting reasons from the Federal Court of Appeal, and reinstated the Federal Court order answering the stated legal question in the affirmative, with costs throughout in favour of the appellant.

The Court expressly declined to comment on the scope of the deemed trust or liability under s. 222 of the Excise Tax Act before bankruptcy.

In a customs tariff appeal, the appellant challenged a judgment that had set aside a tribunal classification of imported hockey gloves.

The Court held that Rules 1 and 2 of the General Rules for the Interpretation of the Harmonized System operate conjunctively within a hierarchical framework when determining prima facie headings.

The majority found the tribunal reasonably concluded the goods were classifiable as gloves under heading 62.16 and reasonably rejected classification under heading 39.26 on the record and applicable notes.

The appellate intervention was set aside and the tribunal decision restored, with dissenting reasons concluding the tribunal’s interpretation was unreasonable.

The Court decided that under s. 20(a) of the International Transfer of Offenders Act, Omar Ahmed Khadr’s eight-year sentence could not be treated as five distinct concurrent eight-year sentences for placement purposes.

It held that the statutory scheme required placement in a provincial correctional facility and confirmed the Alberta Court of Appeal’s order.

The appeal was dismissed with costs.