Le Groupe Jean Coutu – Quebec Court of Appeal finds that rectification is not available to reverse an adverse tax consequence (FAPI) that the parties did not think about

The taxpayer implemented a plan, to neutralize the effect of FX fluctuations on its investment in a U.S. sub, that overlooked FAPI considerations – so that interest on a loan made by the sub back to Canada was included in the taxpayer’s income. Schrager JA reversed a decision below that the transactions could be rectified to retroactively adopt a Plan B, which had been considered before the bad plan was implemented instead, and which would have avoided the FAPI problem.

Per Graymar, "rectification is available in order to avoid a tax disadvantage which the parties had originally transacted to avoid, it is not available to avoid an unintended tax disadvantage which the parties had not anticipated." Since the parties had not thought about FAPI, rectification to reverse FAPI was not available, i.e., a "general intent…that their transaction be ‘tax neutral’ is not sufficiently determinate."

Neal Armstrong.  Summary of A.G. Canada v. Le Groupe Jean Coutu (PJC) Inc., 2015 QCCA 838 under General Concepts - Rectification.