(October 6 – 16:50 ET) – Ontario’s Court of Appeal has sided against the taxman in favour of a family-owned variety store chain.
The appeals court reasoned that it has the “discretion to rectify where it is satisfied that the document does not carry out the intention of the parties. This is the basic principle. Parties are entitled to enter into any transaction which is legal, and, in particular, are entitled to arrange their affairs to avoid payment of tax if they legitimately can.”
The Juliar family transferred shares to another company they owned, taking back a promissory note. The note triggered a large tax assessment. After filing their return, the Juliars sought a rectification order to undo the transaction, stating that they had intended to take back a transfer of shares instead. The share transfer has more nominal tax consequences.
The Juliars were granted the order by the Ontario Court’s general division. The Canada Customs and Revenue Agency appealed, arguing that the original intention of the parties was to take back the promissory note. The Court of Appeal decided against the CCRA.
For a discussion of this case and other recent precedent-setting tax cases, see the upcoming special Tax Planning supplement in the mid-October issue of Investment Executive.
-IE Staff