20 November 2017 CTF Annual Conference - Diana Aird (Justice) on Rectification & Rescission
This is a summary of oral remarks made by Diana Aird of the Department of Justice during the Panel "Rectification, Rescission, and other Equitable Remedies: Post Fairmont" held on November 20, 2017 in Toronto during the Annual Conference of the Canadian Tax Foundation. Timothy Fitzsimmons (PwC Law) and Elie Roth (Davies) also spoke on the Panel, and it was chaired by Jeffrey Trossman (Blakes).
Procedure for obtaining equitable relief
Generally, cases for equitable relief proceed by way of application. There is no witness testimony, but there are affidavits, with documents submitted as exhibits to the affidavits. There can be cross-examination. The judge will read the transcript of the cross-examination and all of the evidence.
The Attorney General’s position is that, if a party is seeking an equitable remedy in order to retroactively affect its tax liability, the Attorney General should be given notice. This is not the same thing as being named a party - it may turn out that the CRA does not think there is a tax issue, in which case the parties can proceed on their own, but we do like to be given notice. Once the materials are served on the Department of Justice, a lawyer will be assigned to the file and, like all of our files, there is an instructing officer from the CRA.
Justice Rectification Committee
People often have questions about the Department’s Rectification Committee. This is an internal committee of lawyers from across the country and all of our Justice offices. The purpose of the Committee is to allow us to consult one-another to make sure that we are taking consistent positions across the country. There is nobody from the CRA on the Committee – it is just a working group of lawyers.
What should be in the application
Broadly, when we get a file, we will look for three things:
- Is the file going to affect anyone’s tax liability? If the answer is no, then the inquiry ends.
- Is the relief that the taxpayer is seeking within the jurisdiction of a Superior Court, or is it a Tax Court or Federal Court matter?
- Do the facts in the Affidavits meet the legal requirements for the remedy sought?
If there is missing information, we might informally ask for further information, or we may decide we need to cross-examine. In some cases, we also put in Affidavits from the CRA to ensure the court has all the relevant facts.
The best practice is to submit Affidavits from people who have direct knowledge of the original agreement or tax plan, and to be precise about what the agreement was supposed to be, and what the mistake was or what went wrong. For example, someone might have relied on a wrong precedent, or there may have been a clerical mistake.
We understand that there is some professional concern about people falling on their swords, but it is worse if we receive a murky story that we cannot make sense of. When someone does come forward saying “I made a mistake,” those are usually easier to correct.
I would like to close with two points. First, make sure you append your actual documents, that prove what you are trying to convince us of, to your affidavits. Contemporaneous documents are usually going to be the most persuasive evidence you have – they are much better than someone’s recollection of whatever the tax plan was, years after the fact.
Second, include the document that you are asking the court to do something with, whether to add words to it or take them away. That document needs to be in the record so that we all know precisely what is being considered. We sometimes encounter documents that are worded very vaguely – asking us to fix the tax mistake and allowing the taxpayer to draft whole new documents, “whatever is needed.” That is unlikely to help your clients get the relief they need, because these remedies are all about the documents. The tax will be assessed on what those documents say.
Efficacy of recitals
In response to the question “is it a good idea to include in your documents explicit recitals of the parties’ commercial and tax objectives?”:
It will not hurt. The difficulty is that, for example, where the recital says “we want to do a valid rollover,” but then you fail to do a valid rollover, the recital is not going to get you one. A recital will not be a magic bullet.