A Canada Life subsidiary (CLICC) clearly intended to realize an accrued loss on its LP interest in a subsidiary partnership by winding it up. This was accomplished by transferring pro rata interests in the partnership to its two partners (CLICC as to a 99% interest and a wholly-owned subsidiary of CLICC (“CLICC GP”) as to a 1% interest) followed immediately by a winding-up of CLICC GP into CLICC. CRA reassessed to deny the loss on the basis that the s. 98(5) rollover applied.
Pattillo J had issued an order rectifying the transactions in a number of respects, including delaying the date on which CLICC GP was wound-up until after the three month period referred to in s. 98(5). In its cross-appeal, CLICC now sought an order simply cancelling the winding-up of CLICC GP. It argued that Fairmont “left open the ability for a court, in the exercise of its general equitable jurisdiction, to correct a mistake” (para. 32) and, in the alternative, that the requested relief was available on the basis of “the remedy of equitable rescission of voluntary dispositions” (para. 36).
In finding that the requested order was not available, van Rensburg JA stated (at paras 45 and 46):
Rectification is now limited to cases where the written instrument fails to record correctly the parties’ agreement.
In addition, Fairmont Hotels and Jean Coutu also affirm the underlying policy rationale of Bramco; it is not possible to alter corporate transactions on a nunc pro tunc basis to achieve particular tax objectives. In other words, the Supreme Court has signaled that retroactive tax planning by order of the Superior Court exercising its equitable jurisdiction is impermissible.
van Rensburg JA also found that the order could not be made through the equitable remedy of rescission of a voluntary disposition, stating (at paras 89 and 90):
The relief that CLICC seeks is more accurately described as rescission of a contract entered into by mistake. …None of …[the] requirements [set out in Miller Paving Limited v. B. Gottardo Construction Ltd., 2007 ONCA 422, 313 O.A.C. 137] apply in the present case, nor does CLICC attempt to bring itself within the requirements for equitable rescission of a contract.
Another impediment to the relief sought by CLICC is that rescission is an “all or nothing” remedy; partial rescission is not a recognized equitable remedy… . CLICC … does not ask the court to rescind the entire Transaction, and to restore it and its affiliates to their original rights, because to do so would not achieve its objective of triggering a loss to set off against its foreign exchange gains.