Mistake

Table of Contents

Cases

Nussey v. Canada, 2001 DTC 5240, 2001 FCA 99

The two sons of the taxpayer had transferred to him shares of a family corporation. The shareholders' agreement provided that, on the death of a shareholder, his shares were deemed to have been redeemed by the company on the day preceding that of death.

After affirming the finding of the Tax Court Judge that the deemed redemption provisions in the agreement did not effect a retroactive disposition of the shares the day before the taxpayer's death, the Court indicated that it was not persuaded that the sale of the shares to the taxpayer was void for a mistake because the sale did not have one of its intended tax consequences.

Evans J.A. stated (at p. 5241):

"The mistake of law concerning the tax consequences of the redemption provision in the shareholders' agreement was not such as to render the contract, and hence the transfer, null and void from the beginning."

Locations of other summaries Wordcount
Tax Topics - General Concepts - Effective Date agreed retroactive redemption date was ineffective 77
Tax Topics - Income Tax Act - Section 70 - Subsection 70(5) 108

See Also

Pitt v. Commissioners for HM Revenue and Customs, [2013] UKSC 26, [2013] WLR (D) 172

mistake re tax consequences justified rescinding settlement of trust

The claimant had settled the moneys received as damages for injury to her husband on a discretionary trust of which she and others were trustees. The death of her husband gave rise to an immediate inheritance tax, as the terms of the turst had failed to provide that at least half of the settled property was to be applied during his lifetime for his benefit (as in fact occurred).

On finding that the trust should be set aside on the grounds of mistake, Lord Walker noted (at para. 122) that the true requirement for rescinding a voluntary disposition such as a gift or settlement was

for there to be a causative mistake of sufficient gravity; and …[this] test will normally be satisfied only when there is a mistake as to the legal character or nature of a transaction or some matter of law which is basic to the transaction.

He further noted (at para. 132) that "consequences (including tax consequences) are relevant to the gravity of a mistake."

Locations of other summaries Wordcount
Tax Topics - General Concepts - Rectification & Rescission mistake re tax consequences justified rescinding settlement of trust 166

McLeod v. The Queen, 97 DTC 777 (TCC)

The taxpayers' position was that a sale by them of shares to a company owned by their son and his wife should be treated for taxation purposes as void ab initio on the ground of common mistake, so that the sale proceeds were not deemed to be a dividend by section 84.1. Before going on to find that the parties had thereby adopted the terms of the contract after the true facts were known by continuing to make and receive instalments of the purchase price after Revenue Canada had reassessed, Bowies TCJ. stated (at p. 780):

"Nor is there a mistake of fact shared by both parties which renders the subject matter of the contract 'essentially and radically different from the subject matter which the parties believed to exist'. The subject matter was exactly what the parties thought it was - a sale of shares in the business for cash and future payments. Only the incidence of taxation on the proceeds of sale was different, and that mistake was neither common to both parties, nor fundamental to the contract."