Tax Rectification – Toronto Tax Lawyer Analysis – Part I

Tax rectification is a remedy that can be sought when a legal document fails to reflect the tax intent of the parties to that document. When granted the court will retroactively alter the text of the document to reflect the original intentions of the parties. Rectification has been used extensively for the purposes of fixing tax problems by having the court alter the documents which gave rise to the mistake. It should also be noted that although the parties to an agreement can agree to amend the agreement, that amendment is not effective retroactively against the CRA unless an order from the court granting rectification is obtained. If you have a tax problem, please contact one of our experienced Toronto tax lawyers to discuss if rectification may be available to provide you with tax help.

The key tax rectification case until Fairmont Hotels was Juliar v. Canada (Attorney General), where the taxpayer was involved in reorganizing a family business. The taxpayer was a party to a written agreement that exchanged shares for promissory notes. The parties had intended for the transaction to occur on a tax deferred basis, but it turned out that the value of the promissory notes exceeded that of the shares, which resulted in a deemed dividend. If the taxpayer had proceeded by way of a share for share exchange then the transaction would have been completed on a tax deferred basis. The taxpayer then successfully applied to the court to rectify the transaction by altering the written agreement so that it was a share for share exchange on the grounds that the original written agreement failed to reflect the parties’ intention for the transaction to proceed on a tax deferred basis. Our expert Toronto Tax Lawyers can help in properly implementing a tax reorganization.

Canada (Attorney Genera) v. Fairmont Hotels Inc., the Supreme Court of Canada’s latest decision on rectification, is a significant development because it narrows the scope of when taxpayers can ask the court for rectification. Court orders for rectification will no longer be available in situations similar to Juliar v. Canada (Attorney General). Despite this, there is still room for the doctrine of rectification to be relevant in the Canadian tax context. In light of this decision, taxpayers will need to adopt new strategies both to avoid the need for rectification orders and to be able to obtain one if necessary. If you would like to learn more about how to respond to the Supreme Court of Canada’s decision, please contact one of our experienced Toronto tax lawyers.

Part I of this article provided background on the doctrine of rectification and how it is used in the Canadian tax context. Part II will review the facts of Canada (Attorney General) v. Fairmont Hotels Inc. and the decisions made by the lower courts. Part III will discuss the Supreme Court of Canada’s decision and its consequences for taxpayers going forward.

Read the next part of this article by clicking on SCC Update on Tax Rectification.

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Tax Rectification – Toronto Tax Lawyer Analysis – Part I

CRA Update to CRA Tax Collections Information Circular IC98-1R6

CRA updated its tax collections information for taxpayers, IC98-1R6, which is the sixth revision of this Information Circular. The changes reflect the new rules for interest relief as a result of implementation of the Court of Appeal decision in Bozzer v. Canada (2011 FCA 186). Although the policies have not changed, it is helpful to remember the rules relating to payments of amounts or security that has been granted in respect of a tax assessment that is disputed with a Notice of Objection or an appeal to the Tax Court of Canada. If CRA Appeals has not confirmed or varied an income tax assessment within 120 days a Canadian tax lawyer can apply for the return of all amounts paid, or the release of any security provided for the tax in dispute.

CRA Update to CRA Tax Collections Information Circular IC98-1R6