Fixing Tax Mistakes: Rectification Order Affirmed
On October 30, 2019 the British Columbia Court of Appeal ("BCCA") dismissed the appeal of the Attorney General and upheld the order of the Supreme Court of British Columbia ("BCSC") rectifying a directors’ resolution declaring a dividend from the "capital dividend account" of a private corporation.1 For additional background on the superior court decision under appeal, and other recent decisions involving rectification, please see the author's previous case comment.2
The Manitoba Ltd. decision is a welcome development in the law for taxpayers who may require equitable relief to fix
unintended tax arising from mistakes. It was initially feared by advisors that the Supreme Court of Canada's landmark decision in Fairmont Hotels3 would eliminate rectification in the tax context.
The case law surrounding equitable relief in the tax context continues to evolve. However, there is no doubt that the courts have reconciled Fairmont Hotels and are comfortable granting rectification or rescission if the circumstances merit such relief. For taxpayers or advisors faced with unintended tax consequences due to a mistake, rectification remains available following Fairmont Hotels under certain limited circumstances.
1 5551928 Manitoba Ltd. v Canada (Attorney General), 2019 BCCA 376 ["Manitoba Ltd."] aff'g. 2018 BCSC 1482.
2 First published by the Canadian Tax Foundation.
3 Canada (Attorney General) v Fairmont Hotels, 2016 SCC 56 ["3 Canada (Attorney General) v Fairmont Hotels Inc.