The recent decision of the Ontario Superior Court of Justice in Slate Management Corporation v. Attorney General of Canada[1] indicates that applicants do not have to wait for the Supreme Court of Canada’s (“SCC”) pending judgments in two high profile rectification cases before seeking rectification orders.
On May 19, 2016, the SCC heard arguments in Jean Coutu Group (PJC) Inc. v. Attorney General of Canada[2] and Attorney General of Canada v. Fairmont Hotels Inc., et al.[3] It is anticipated that the SCC will take the opportunity made available by these cases, the former being from Quebec and the latter being from Ontario, to provide national clarity and direction on the law of rectification. The case law has been wildly inconsistent across the country since the Ontario Court of Appeal’s landmark decision in Juliar v. Canada (Attorney General)[4], the case that paved the way for rectification to be used to alter completed transactions in order to avoid unintended tax results. Many in the tax community thought that there would be a moratorium on rectification applications and that those in progress would be held in abeyance until the SCC had spoken.
Addressing this issue directly, Justice Hainey in Slate Management did not accept the SCC’s pending decisions as justification for adjourning the application and proceeded to hear the matter. He even went so far as to rely on the Ontario Court of Appeal’s decision in Fairmont[5], which is the exact case in which the SCC has reserved judgment.
The issue in Slate Management was straightforward. The applicant argued that it had intended that its amalgamation of three corporations would achieve a specific tax outcome by using the “tax bump rules” under paragraph 88(1)(d) of the Income Tax Act (Canada). However, it failed to attain the sought after tax outcome because it undertook the amalgamation in one step instead of sequential amalgamations in two steps. The question before the Court was whether the applicant had a continuing intention to achieve the tax outcome by using the tax bump rules. The Court found that, on a balance of probabilities, there was a continuing intention. The application was allowed and the applicant was awarded $20,000 in costs.
[1] 2016 ONSC 4216 (Commercial List).
[2] Docket number 36505. For a summary of the case see http://www.scc-csc.ca/case-dossier/info/sum-som-eng.aspx?cas=36505
[3] Docket number 36606. For a summary of the case see http://www.scc-csc.ca/case-dossier/info/sum-som-eng.aspx?cas=36606
[4] [2001] 4 CTC 45 (Ont. C.A.).
[5] 2015 ONCA 441.
