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ARTICLE · 16 DECEMBER 2016

SCC Confirms General Intention Not Sufficient For Rectification In Tax Cases

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On December 9, 2016, the Supreme Court released its decisions in two tax rectification cases: Jean Coutu Group (PJC) Inc. Canada (Attorney General), 2016 SCC 55...

CanadaLitigation, Mediation & Arbitration
David Wahl
David Wahl
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On December 9, 2016, the Supreme Court released its decisions in two tax rectification cases: Jean Coutu Group (PJC) Inc. Canada (Attorney General), 2016 SCC 55 and Canada (Attorney General) Fairmont Hotels Inc., 2016 SCC 56. These decisions provide needed clarification as to when rectification will be granted in tax cases. In particular, these decisions answer the question as to whether a general intention to structure a transaction on a tax neutral basis is enough to permit rectification. The answer we now know is no.

In Jean Coutu, a US subsidiary of a Canadian corporation acquired a chain of American pharmacies in 2004. Due to fluctuations in the exchange rate, a problem with the accounting presentation of the acquisition arose. In an attempt to find a tax-neutral solution, a series of transactions were carried out, the net effect of which was to transform the net US investment into a net debt. The anticipated and agreed upon tax consequences of the transactions

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