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Rectification of tax records denied as documents reflected original intent; declaration of capital return granted.
The applicants invested in a Ponzi scheme through their companies.
They received payments that were reported as income and paid taxes on them.
After discovering the fraud, they applied for an order rectifying their corporate and tax records to show the payments as a return of capital, and for a declaration to that effect.
The court dismissed the claim for rectification because the documents accurately reflected the applicants' intentions at the time they were prepared.
However, the court granted a declaration that the moneys were a return of capital, without prejudice to how the payments should be treated for tax purposes by the tax authorities.
Rectification allowed where tax-neutral restructuring intention was clear from the outset.
The Minister appealed an order rectifying a corporate reorganization involving the division of a family business.
The respondents had transferred shares to a holding company in exchange for promissory notes based on mistaken accounting advice, triggering immediate tax liability under the Income Tax Act instead of a tax-deferred rollover.
The court held that rectification was available where the written transaction failed to reflect the parties' true agreement, which from the outset was to complete the restructuring without immediate tax consequences.
The application judge's findings of a primary and continuing tax-neutral objective were upheld, and the appeal was dismissed with costs.
