Margaret Nixon

The respondent sought to rectify corporate resolutions after an accounting error resulted in an unintended tax liability under Part III of the Income Tax Act.

The application judge granted rectification, finding that the objective was to pay a tax-free capital dividend.

The Court of Appeal allowed the appeal, holding that rectification is not available to correct an agreement that failed to achieve an intended fiscal objective, as the executed documents accurately reflected the parties' agreement to pay a $1.4 million dividend.

The applicant, Pyxis Real Estate Equities Inc., sought an order to rectify corporate documents to correct a mistake made by its accountants.

The mistake resulted in an unintended tax consequence related to a series of inter-corporate capital dividends, which were intended to provide a tax-free dividend of $1,400,000 to a shareholder.

The respondent, Attorney General of Canada, argued that rectification was inappropriate as the facts did not meet the legal requirements and that it constituted retroactive tax planning.

The court granted the application, finding that the true intention of the transaction was to achieve a tax-free dividend, and the documents failed to reflect this due to a transcription error, not a flaw in the tax structure itself.

The court emphasized viewing the transaction holistically to give it business efficacy.