Greither Estate – B.C. Supreme Court finds that taking back excess boot cannot be rectified under the BCA provision for correcting “corporate” mistakes

A non-resident estate, whose shares of a Canadian company had stepped-up basis under s. 70(5) but had nominal paid-up capital, was advised by a tax lawyer who had forgotten about s. 212.1. After it had been assessed for withholding tax as a result of transferring its shares of the company to a related company for consideration consisting mostly of a promissory note, it applied for relief pursuant to s. 229 of the B.C. Business Corporations Act to correct this “corporate” mistake.

Meyer J noted the somewhat narrow list of types of corrections in s. 229 and found that “the mistake of not completing the Transaction in the most tax effective manner does not … fall within these subsections.” Although he was not asked to provide relief under the general rectification doctrine, he commented on this anyway, stating:

As stated by the majority … in Fairmont Hotels business and individuals should not be allowed to exploit rectification for the purposes of engaging in retroactive tax planning and as stated by the dissent, “allowing parties to rewrite documents and restructure their affairs based solely on a generalized and all-encompassing preference for paying lower taxes is not consistent with the equitable principles that inform rectification.”

Neal Armstrong. Summary of Greither Estate v. Canada (Attorney General), 2017 BCSC 994 under General Concepts – Rectification.