Canada Life- Ontario Court of Appeal finds that a transaction resulting from a tax mistake should not be remedied under the Court’s general equitable jurisdiction
A Canada Life subsidiary (CLICC) had sought 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, namely, CLICC and a wholly-owned GP, based on their respective 99% and 1% interests - followed immediately by a winding-up of the GP corporation into CLICC. CRA reassessed to deny the loss on the basis that the s. 98(5) rollover applied.
All that CLICC requested was for the Ontario Court of Appeal to cancel the winding-up of the GP, rather than to rectify the transactions. It argued that Fairmont “left open the ability for a court, in the exercise of its general equitable jurisdiction, to correct a mistake.” Before concluding that no remedy was available, van Rensburg JA construed the scope of Fairmont and Jean Coutu quite broadly, stating:
[I]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.
She also found that the remedy of equitable rescission of voluntary dispositions was unavailable.
Neal Armstrong. Summary of Canada Life Insurance Company of Canada v. Canada (Attorney General), 2018 ONCA 562 under General Concepts – Rectification & Rescission.