Pallen Trust, Re, 2015 BCCA 222

JudgeNewbury, Saunders and Savage, JJ.A.
CourtCourt of Appeal (British Columbia)
Case DateApril 27, 2015
JurisdictionBritish Columbia
Citations2015 BCCA 222;(2015), 373 B.C.A.C. 37 (CA)

Pallen Trust, Re (2015), 373 B.C.A.C. 37 (CA);

    641 W.A.C. 37

MLB headnote and full text

Temp. Cite: [2015] B.C.A.C. TBEd. MY.046

Re Pallen Trust

Her Majesty the Queen in Right of Canada (appellant/respondent) v. The Pallen Trust (respondent/petitioner)

(CA41693; 2015 BCCA 222)

Indexed As: Pallen Trust, Re

British Columbia Court of Appeal

Newbury, Saunders and Savage, JJ.A.

May 20, 2015.

Summary:

A declaration and payment of two dividends totalling $1,750,000 by a corporation ("New Integrated") to the Pallen Trust in 2008 represented the final step in a plan of reorganization carried out by various corporations controlled by Mr. Pallen, the trustee and the shareholder of a beneficiary of the Pallen Trust. At the time of the reorganization, the understanding of the trustee of the Pallen Trust and that of its advisors was that the mode of transfer of the property to the Trust, whether by sale or gift, was irrelevant for tax purposes, i.e., that as long as the trust "held" the property s. 75(2) of the Income Tax Act applied. However, in 2012 the Federal Court of Appeal in Canada v. Sommerer adopted a restrictive view, ruling that s. 75(2) could not have been intended to apply where the property in question was sold to a trust, as opposed to gifted to, or settled on, the trust. In 2012, relying on Sommerer, CRA notified the Pallen Trust that it proposed to re-assess its 2008 tax return. CRA asserted that since s. 75(2) was not now applicable (the Trust having purchased for $100, the shares on which the dividends were paid) the dividends paid by New Integrated were taxable in the hands of the Pallen Trust rather than attributed to the transferor corporation. The re-assessment would result in tax payable by the Pallen Trust in the amount of some $552,000. The Pallen Trust filed a petition seeking rescission of the two dividends it received.

The British Columbia Supreme Court, in a decision reported at [2014] B.C.T.C. Uned. 305, granted rescission on the basis of mistake, relying in large part on the 2013 decision of the Supreme Court of the United Kingdom in Pitt v. Holt. The mistake asserted by the Pallen Trust was that its trustee (as well as the corporations involved in the reorganization and their advisors) had relied on a particular understanding of s. 75(2) of the ITA. The chambers judge found that on an application of Pitt v. Holt, a causative mistake of sufficient gravity had been shown, and that the equities of the case supported granting rescission. CRA appealed on the grounds that: 1. the chambers judge failed to correctly apply the test for equitable rescission of a voluntary disposition made as part of an artificial tax avoidance plan; 2. the chambers judge erred by concluding that the Minister would not have challenged the Plan prior to Sommerer; and 3. the chambers judge further erred by ordering the dividends rescinded ab initio as the court's equitable jurisdiction did not extend to retroactively invalidating an otherwise valid transaction.

The British Columbia Court of Appeal dismissed the appeal.

Equity - Topic 1005

Equitable relief - Mistake of law - See paragraphs 37 to 58.

Equity - Topic 1009

Equitable relief - General - Rescission - See paragraphs 37 to 62.

Income Tax - Topic 5461

Trusts - Liability for tax - General - See paragraphs 37 to 58.

Mistake - Topic 201

Mistake of law - General - See paragraphs 37 to 58.

Mistake - Topic 4005

Relief - Circumstances when granted - See paragraphs 37 to 58.

Cases Noticed:

Futter et al. v. United Kingdom (Her Majesty's Revenue and Customs) (2013), 445 N.R. 200; [2013] UKSC 26, consd. [para. 2].

Gibbon v. Mitchell, [1990] 1 W.L.R. 1304 (Ch. Div.), refd to. [para. 2].

McClurg v. Minister of National Revenue, [1990] 3 S.C.R. 1020; 119 N.R. 101, refd to. [para. 4].

Sommerer v. Minister of National Revenue, 2011 TCC 212, affd. (2012), 434 N.R. 130; 2012 FCA 207, consd. [para. 6].

Ogilvie v. Littleboy (1897), 13 T.L.R. 399 (C.A.), refd to. [para. 29].

Hastings-Bass, Re, [1975] Ch. 25, refd to. [para. 29].

Mettoy Pension Trustees Ltd. v. Evans, [1990] 1 W.L.R. 1587 (C.A.), refd to. [para. 29].

Anker Petersen v. Christensen, [2002] W.T.L.R. 313 (Ch.), refd to. [para. 29].

Wolff v. Wolff, [2004] S.T.C. 1633, refd to. [para. 29].

Sieff v. Fox, [2005] E.W.H.C. 1312 (Ch.), refd to. [para. 29].

Racal Group Services v. Ashmore, [1995] S.T.C. 1151, refd to. [para. 34].

771225 Ontario Inc. et al. v. Bramco Holdings Co. et al. (1995), 77 O.A.C. 75; 21 O.R.(3d) 739 (C.A.), consd. [para. 42].

JAFT Corp. v. Jones et al. (2014), 304 Man.R.(2d) 86; 2014 MBQB 59, refd to. [para. 44].

Agence du Revenu du Québec v. Services Environnementaux AES inc. et al. (2013), 453 N.R. 119; 2013 SCC 65, consd. [para. 45].

Canadian Imperial Bank of Commerce v. Minister of National Revenue (2013), 444 N.R. 376; 2013 FCA 122, refd to. [para. 51].

65302 British Columbia Ltd. v. Minister of National Revenue, [1999] 3 S.C.R. 804; 248 N.R. 216, refd to. [para. 51].

Minister of National Revenue v. Eldridge, [1964] C.T.C. 545 (Exch.), refd to. [para. 51].

Signalisation de Montréal Inc. v. Services de Béton Universels ltée et al., [1993] 1 F.C. 341; 147 N.R. 241 (F.C.A.), refd to. [para. 53].

Kennedy v. Kennedy, [2014] E.W.H.C. 4129 (Ch. Div.), refd to. [para. 53].

Winsor v. Minister of National Revenue, 91 B.T.C. 1170 (T.C.C.), refd to. [para. 60].

Allnutt v. Wilding, 2009 EWCA Civ. 912, refd to. [para. 61].

Varevic Enterprises Ltd. v. Mack (1985), 66 B.C.L.R. 211 (C.A.), refd to. [para. 61].

Johnson et al. v. Agnew, [1979] All E.R. 833 (H.L.), refd to. [para. 61].

Statutes Noticed:

Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1, sect. 75(2) [para. 5].

Authors and Works Noticed:

Bhandari, Monica, Undoing Transactions for Tax Purposes: The Hastings-Bass Principle, in Elliott, S., Häcker, B., and Mitchell, C., Restitution of Overpaid Tax, p. 158 [para. 29].

Lewin on Trusts (18th Ed. 2007), pp. 54 to 58 [para. 29].

Lewin on Trusts (19th Ed. 2015), § 4-061 [para. 61].

Li, J., and Hwong, T., GAAR in Action: An Empirical Exploration of Tax Court of Canada Cases (1997-2009) and Judicial Decision-Making (2013), 61:2 Canadian Tax Journal 321, p. 330 [para. 37].

O'Sullivan, D., Elliot, S., and Zakrzewski, R., The Law of Rescission (2nd Ed. 2015), c. VII [para. 4]; § 1.14 to 1.15 [para. 61].

Waters' Law of Trusts in Canada (4th Ed. 2012), p. 622-3 [para. 8].

Counsel:

M. Taylor, S. Sit and Z. Froese, for the appellant;

J. Nitikman, for the respondent.

This appeal was heard at Vancouver, B.C., on April 27, 2015, before Newbury, Saunders and Savage, JJ.A., of the British Columbia Court of Appeal. The following judgment of the Court of Appeal was delivered by Newbury, J.A., on May 20, 2015.

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20 practice notes
  • Canada (Attorney General) v. Collins Family Trust, 2022 SCC 26
    • Canada
    • Supreme Court (Canada)
    • June 17, 2022
    ...dividends. The chambers judge considered himself bound to follow the Court of Appeal for British Columbia’s decision in Re Pallen Trust, 2015 BCCA 222, 385 D.L.R. (4th) 499 , which had applied the test for equitable rescission stated in Pitt v. Holt, [2013] UKSC 26 , [2013] 2 A.C. 108 , ......
  • Canada (Attorney General) v. Fairmont Hotels Inc., 2016 SCC 56
    • Canada
    • Supreme Court (Canada)
    • December 9, 2016
    ...Shell Canada Ltd. v. Canada, [1999] 3 S.C.R. 622; Kanji v. Canada (Attorney General), 2013 ONSC 781, 114 O.R. (3d) 1; Pallen Trust, Re, 2015 BCCA 222, 385 D.L.R. (4th) 499; 771225 Ontario Inc. v. Bramco Holdings Co. (1995), 21 O.R. (3d) 739; Canada (Attorney General) v. Juliar (2000), 50 O.......
  • Jean Coutu Group (PJC) Inc. v. Canada (Attorney General), 2016 SCC 55
    • Canada
    • Supreme Court (Canada)
    • December 9, 2016
    ...2 S.C.R. 235; Walls v. Canada, 2002 SCC 47, [2002] 2 S.C.R. 684; Backman v. Canada, 2001 SCC 10, [2001] 1 S.C.R. 367; Pallen Trust, Re, 2015 BCCA 222, 385 D.L.R. (4th) 499; Lemair v. Canada (Procureur général), 2015 QCCS 1142; Canada (Attorney General) v. Brogan Family Trust, 2014 ONSC 6354......
  • Canada Life Insurance Company of Canada v. Canada (Attorney General), 2018 ONCA 562
    • Canada
    • Court of Appeal (Ontario)
    • June 21, 2018
    ...CLICC relies on two cases involving rescission of voluntary dispositions: Pitt v. Holt, [2013] 2 A.C. 108 (U.K.S.C.) and Re Pallen Trust, 2015 BCCA 222, 76 B.C.L.R. (5th) 256, which followed and applied Pitt v. Holt. It says that these cases are authority that the remedy of equitable rescis......
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10 cases
  • Canada (Attorney General) v. Fairmont Hotels Inc., 2016 SCC 56
    • Canada
    • Supreme Court (Canada)
    • December 9, 2016
    ...Shell Canada Ltd. v. Canada, [1999] 3 S.C.R. 622; Kanji v. Canada (Attorney General), 2013 ONSC 781, 114 O.R. (3d) 1; Pallen Trust, Re, 2015 BCCA 222, 385 D.L.R. (4th) 499; 771225 Ontario Inc. v. Bramco Holdings Co. (1995), 21 O.R. (3d) 739; Canada (Attorney General) v. Juliar (2000), 50 O.......
  • Canada (Attorney General) v. Collins Family Trust, 2022 SCC 26
    • Canada
    • Supreme Court (Canada)
    • June 17, 2022
    ...dividends. The chambers judge considered himself bound to follow the Court of Appeal for British Columbia’s decision in Re Pallen Trust, 2015 BCCA 222, 385 D.L.R. (4th) 499 , which had applied the test for equitable rescission stated in Pitt v. Holt, [2013] UKSC 26 , [2013] 2 A.C. 108 , ......
  • Jean Coutu Group (PJC) Inc. v. Canada (Attorney General), 2016 SCC 55
    • Canada
    • Supreme Court (Canada)
    • December 9, 2016
    ...2 S.C.R. 235; Walls v. Canada, 2002 SCC 47, [2002] 2 S.C.R. 684; Backman v. Canada, 2001 SCC 10, [2001] 1 S.C.R. 367; Pallen Trust, Re, 2015 BCCA 222, 385 D.L.R. (4th) 499; Lemair v. Canada (Procureur général), 2015 QCCS 1142; Canada (Attorney General) v. Brogan Family Trust, 2014 ONSC 6354......
  • Kraft Heinz Canada ULC v. Canada (Attorney General), 2022 BCSC 796
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    • Supreme Court of British Columbia (Canada)
    • May 13, 2022
    ...not been made or the disposition had not taken place; Canfield v. Bronze Wines Ltd., 2022 BCSC 546 at para. 102; Re Pallen Trust, 2015 BCCA 222 at para. 61.  Rescission of a voluntary disposition can be granted on the basis of a mistake as to the legal character or nature of the t......
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10 firm's commentaries
  • Rectification Is Back—Is Rescission Next?
    • Canada
    • Mondaq Canada
    • January 24, 2020
    ...unconscionable, unjust, or unfair to leave the mistake uncorrected. Prior to Fairmont Hotels, rescission was granted in Re Pallen Trust (2015 BCCA 222) and Stone's Jewellery (2009 ABQB 656). The BCCA in Pallen Trust specifically found that rescission involved a fact-focused analysis that co......
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    • Canada
    • Mondaq Canada
    • June 24, 2022
    ...the use of recession to avoid the unanticipated tax liability. Lower Court Decisions The BC Supreme Court relied heavily on Pallen Trust, 2015 BCCA 222, ("Pallen") to grant the rescission order. Pallen was a BC case involving a series of transactions very similar to Collins Family Trust. In......
  • Canada's Top Court Decides Against Equitable Rescission In Collins Family Trust
    • Canada
    • Mondaq Canada
    • June 22, 2022
    ...of Appeal, which had granted rescission in a substantially identical case a few years earlier (Re Pallen Trust, 2014 BCSC 305, affirmed 2015 BCCA 222). Our Loss of an Important Remedy Against Unjust and Onerous Taxation Collins sets out a broad principle that taxpayers should not be permitt......
  • SCC Limits The Availability Of Rescission For Tax-Planning Mistakes
    • Canada
    • Mondaq Canada
    • July 5, 2022
    ...instead was only available where the circumstances met the general rectification test. In the pre-Fairmont decision of Re Pallen Trust, 2015 BCCA 222, the British Columbia Court of Appeal granted rescission for the same type of tax plan as considered in Collins Trust. The Court relied on Pi......
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