Tax practitioners will be familiar with the Juliar case, which allowed the parties to a transaction to amend it with retroactive effect in order to avoid adverse income tax consequences. According to the Ontario Court of Appeal decision in the case, it didn’t matter that the only purpose for the amendment was to avoid or postpone income taxes. What mattered was that the parties had a continuing, common intention to effect the transactions in a tax-deferred manner, which intention was thwarted by the form of the transaction.
The Ontario Superior Court came to a different conclusion in Binder v. Saffron Rouge Inc., 2008 CanLII 1662 because the parties did not have the requisite common intention.
A corporation wished to issue shares to non-residents. It was advised, however, that issuing a particular number of shares would result in the loss of CCPC status. The parties were not aware that the loss of CCPC status would in turn affect the ability of the shareholders of the corporation to claim the capital gains exemption. The non-resident expressed indifference about the loss of CCPC status (the corporation was losing money anyway at the time), and there was no evidence that the non-resident cared or even knew about the loss of the exemption. Accordingly, the Court denied the request for rectification on the basis that the parties did not have a common intention about the tax consequences of the transaction.
