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Good evening.
Following are the summaries of this week’s civil decisions of the Court of Appeal for Ontario.
In Canada Life Insurance Company of Canada v Canada (Attorney General), Canada Life and some of its affiliates carried out a series of purely tax-driven transactions. The purpose of the Transactions was to realize a $168 million tax loss (without having suffered an economic loss in that amount) to offset unrealized foreign exchange gains accrued in the same taxation year. This would avoid paying millions of dollars in tax to CRA. The CRA disallowed the claimed loss in a reassessment. Asserting that it had proceeded on the basis of erroneous advice from its tax advisor, Canada Life applied to the Superior Court for an order setting aside the Transactions and replacing them with other steps that would permit it to enjoy the intended tax benefit, retroactive to the date of the original Transaction. The application was opposed by the CRA, represented by the Attorney General. The application judge, Pattillo J., granted the order requested by Canada Life. The Court of Appeal allowed CRA’s appeal and dismissed Canada Life’s cross-appeal for alternative relief. The Court followed the Supreme Court’s decision in Fairmont Hotels, which restated the test for rectification, and this situation did not meet that test, as there was no “agreement” to be rectified. The Court dismissed the alternative relief sought by Canada Life, stating that it will not exercise inherent or equitable jurisdiction to undo tax-driven transactions just because they do not yield the desired tax consequences. It was noted that Canada Life had alternative remedies available, including a tax appeal and possible E&O claim against its tax advisers.