In 2017, David Jubb, sole shareholder of Pyxis’s predecessor corporations, sought a tax-free capital dividend strategy to pay off a shareholder loan.
The plan required a $1.4M dividend through a corporate chain, assuming sufficient Capital Dividend Account (CDA) balances.
Accountants failed to review prior tax records, missing a $323,893 CDA deficit in Edgecombe Inc., making the dividend partially taxable.
CRA issued a 60% tax penalty on the excess amount. Pyxis sought rectification of corporate records to reflect a $1,723,893 dividend, claiming it aligned with their intent.
Superior Court Decision
The judge granted rectification, citing Fairmont Hotels (2016 SCC 56), interpreting the intent as ensuring Jubb received $1.4M tax-free.
Court of Appeal Decision
Appeal Allowed – Rectification Denied.
Reasons:
Rectification applies only when a document fails to reflect an actual agreement, not to correct tax mistakes.
The corporate resolutions accurately recorded the agreed-upon transactions.
Fairmont Hotels and Collins Family Trust (2022 SCC 26) confirm rectification cannot be used to reverse tax consequences.
Result: CRA tax assessment upheld; Pyxis liable. Attorney General awarded $25,000 in costs.
