The applicants sought rectification of transaction documents following the acquisition of a telecommunications partnership in order to allow executives who exercised stock options to qualify for the 50% stock option deduction under the Income Tax Act.
The closing structure caused the option shares to be acquired by non‑arm’s‑length vendors rather than by the purchaser, leading the Canada Revenue Agency to deny the deduction.
The court held that rectification requires proof of a prior agreement and common intention that the written instrument failed to record, or strict conditions for unilateral mistake.
The evidence did not establish that the tax treatment of the executives was a shared or material intention of the contracting parties when the agreement was executed.
Unexpected tax consequences alone could not justify retroactively restructuring a completed transaction through rectification.
