The applicants were a limited partnership ("FRPDI") and the partnership's wholly owned corporation ("Graymar"). The implementation of a debt restructuring entailed a complex series of transactions which resulted in an increased subscription of FRPDI for Graymar shares and a corresponding increased amount of debt owing by FRPDI to Graymar. FRPDI failed to repay the loan by the end of the following year, and the Minister assessed the FRPDI partners under s. 15(2).
Brown J dismissed the applicants' request for a retroactive repayment of the loan (by way of set-off against a return of capital by Graymar). Brown J found that rectification was not available as the debt restructuring transactions had no tax avoidance motivation, and "belatedly recognized" adverse tax consequences were insufficient for rectification (para. 79). Before stating (paras. 68-69) that it was inappropriate to consider that tax avoidance is the inherent intention in all commercial transactions, Brown J stated (para. 66):
Juliar sits uneasily with Supreme Court's direction in Performance Industries and Shafron that rectification is granted to restore a transaction to its original purpose, and not to avoid an unintended effect. While, therefore, rectification is available in order to avoid a tax disadvantage which the parties had originally transacted to avoid, it is not available to avoid an unintended tax disadvantage which the parties had not anticipated at the time of transacting.
And at para. 72:
[T]o skate over the requirement, as Juliar does, of showing the intention underlying the original transaction – would effectively render CRA (and, by extension, Canadian taxpayers) the insurer of tax advice providers.