A plan for the tax-free distribution of funds of family companies to family trusts entailed transactions that were intended to cause s. 75(2) to attribute substantial dividends, paid by the family companies to the trusts, to family holding companies so that the s. 112(1) intercorporate dividend deduction applied. However, Sommerer unexpectedly found that s. 75(2) did not apply to sales of property for their FMV (an element of the plan). CRA assessed the trusts on the basis that they had received taxable distributions from the operating companies.
After finding that the principle in Fairmont Hotels and Jean Coutu - that a “court may not modify an instrument merely because a party discovered that its operation generates an adverse and unplanned tax liability” (para. 16(d)) - was not limited to situations of requested rectification and applied as well to the equitable remedy of rescission, so that the trusts’ petition for rescission should be dismissed, Brown J went on to state (at paras. 24-26):
[I]t follows that the Court of Appeal erred in relying upon the conclusion in Pitt v. Holt ([2013] UKSC 26) that equity can relieve a tax mistake … .
Nor does Pitt v. Holt’s conclusion on this point account for our law that, in this case, required the Minister of National Revenue to apply the Act to the transactions. By s. 220(1) of the Act, Parliament has imposed upon the Minister a duty (“[t]he Minister shall”) to “administer and enforce” the Act. No discretion is afforded the Minister or the Minister’s agents: “They are required to follow [the Act] absolutely, just as taxpayers are also required to obey it as it stands” (Harris … .
[T]he Minister was bound to apply Parliament’s direction in the Act, as interpreted by a court of law, unless and until that interpretation is judged to be incorrect by a higher court.