In Mac’s Convenience Stores Inc. v. Canada, 2015 QCCA 837, the Quebec Court of Appeal upheld the decision of the Superior Court refusing to allow rectification of a $136 million dividend that caused adverse tax consequences the company’s tax advisers had not thought of. Payment of the dividend resulted in the company’s interest on a $185 million loan from a related foreign corporation ceasing to be deductible under the thin capitalization rules. The parties sought to rectify by replacing the dividend with a reduction of stated capital.
The court stated that “a taxpayer is obliged to pay tax arising from the transaction it effected and not the transaction that it would have preferred to have effected given the benefit of hindsight regarding unintended tax consequences”. While there was an oversight concerning the deductibility of interest, the transaction that was carried out – the payment of a dividend – was exactly what the parties intended. In this circumstance, rectification was not available.