In Crean v Canada (Attorney General), 2019 BCSC 146, two brothers entered into an agreement they drafted that provided for one brother to sell his one-half of Opco’s shares to the other brother (the owner of the remaining one-half). The agreement specified that the seller would be entitled to realize a capital gain on his sale of the Opco shares.
Unfortunately, the brothers’ accountant recommended that the buyer use a Buyco to acquire the departing brother’s shares so that section 84.1 applied. The brothers applied for rectification of their agreement, which the Court granted. The Court held that rectification was not available only for clerical errors. Rectification was available where
1) there was a prior agreement whose terms are definite and ascertainable;
2) the agreement was still in effect at the time that the instrument was executed;
3) the instrument fails to record the agreement accurately; and
4) the instrument, if rectified, would carry out the parties’ prior agreement.
Hirji and Ruslam, “Rectification: It’s All About Intention” Tax for the Owner-Manager 19:2 (April 2019)
Postscript 2019 05 15 For a summary of other cases involving rectification or rescission, see Rami Pandher, “Rectification: Where Are We Now?” and Lauzanne Bernard-Normand, “Involving the CRA in Rectification and Declaratory Proceedings”, both in Canadian Tax Focus 9:2 (May 2019)