Tara Magill

The respondent sought to rectify corporate resolutions after an accounting error resulted in an unintended tax liability under Part III of the Income Tax Act.

The application judge granted rectification, finding that the objective was to pay a tax-free capital dividend.

The Court of Appeal allowed the appeal, holding that rectification is not available to correct an agreement that failed to achieve an intended fiscal objective, as the executed documents accurately reflected the parties' agreement to pay a $1.4 million dividend.

The applicants sought to rectify a share exchange agreement and related documents that contained a drafting error regarding the number of shares to be issued.

The error had adverse tax consequences.

The Attorney General did not oppose the application.

The court applied the four-part test for rectification from Fairmont, finding that the parties had a clear prior agreement, the agreement was still effective, the documents failed to record it accurately, and the proposed rectification would carry out the agreement.

The court distinguished the recent Supreme Court decision in Collins, noting this was not retroactive tax planning but correcting an erroneous transcription.

The application was granted.

The applicant corporation sought to rectify a directors' resolution that declared capital dividends, after discovering its accountant had miscalculated the available balance in the capital dividend account, resulting in unintended tax consequences.

The court dismissed the application, finding that the resolution accurately recorded the parties' agreement to issue the specific dividend amounts recommended by the accountant.

Applying the Supreme Court's decision in Fairmont Hotels, the court held that rectification cannot be used to retroactively amend an agreement merely to avoid unanticipated tax liabilities, and noted the applicant had alternative remedies available.