On November 19, 2015, the Supreme Court of Canada granted leave
to appeal in Canada (A.G.) v. Groupe Jean Coutu (PJC)
inc., 2015 QCCA 838, which addresses
the question of when rectification will be granted in the tax
Le Groupe Jean Coutu (PJC) inc. acquired an American pharmacy
chain in 2004. It faced a problem with the accounting presentation
of this acquisition due to fluctuations in the exchange rate. In
February 2005, in an attempt to find a tax-neutral solution to
the problem, it carried out a series of transactions, the net
effect of which was to transform the net U.S. investment into a net
debt. The anticipated and agreed to tax consequences of the
transactions were set out in the documentation formalizing the
After an audit for the taxation years 2005 to 2007, CRA advised
Jean Coutu the transactions resulted in $2.2M in additional taxes
for the years in question. Thus, the transactions as documented
addressed the currency hedge problem, but created unanticipated tax
consequences. Jean Coutu filed a motion in Québec Superior
Court for an order rectifying the transactions. The Crown objected
to the motion, arguing Jean Coutu did not meet the test for
The Québec Court of Appeal overturned the Superior Court
decision granting Jean Coutu's motion for rectification. The
Court reviewed the Supreme Court decision in AES &
Riopel., 2013 SCC 65, confirming rectification is available to
correct errors in giving effect to a transaction with intended tax
consequences, but is not a general license to reverse or correct
unintended tax consequences of commercial dealings.
The Court held that the transactions at issue were not
restructuring transactions seeking to defer or avoid foreseen tax
(as in AES & Riopel), but a series of offsetting loans
meant to neutralize the effect on the balance sheet of the
variation in the value of the American investment. The transactions
thus achieved their intended purpose, and the general intention
that the transactions be "tax neutral" was insufficient
to justify rectification.
By granting leave to appeal in this case, the Supreme Court will
hopefully provide clarification on the question of what
"intention" is required to be proven in tax rectification
cases. While prior cases have suggested that a general intention to
enter into a "tax neutral" transaction is sufficient,
more recent decisions have suggested that a more specific intent is
required. If the Court of Appeal decision is upheld, rectification
in the tax context will only be permitted where a transaction is
purposefully structured to avoid specific, identifiable tax
consequences, and not merely structured to be "tax
neutral". If the Court of Appeal is correct, taxpayers and tax
advisors will have to be even more diligent in considering the
potential tax consequences of any transaction.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The CRA provides new housing rebates for individuals who have purchased or built a new house or have substantially renovated a house or made a major addition to a house who plan on living in it personally or letting a relative live there.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).