Twomey - Taxpayer succeeds in self-help rectification before the Tax Court

When the taxpayer and the other individual shareholder discovered that the corporate minutes disclosed that, on the organization of their corporation, only one share, rather than 100 shares, had been issued to them, they passed a corporate resolution to correct this error, so that the minute books now conformed with the corporate financial statements.  They did not seek a judicial rectification order.

Pizzitelli J. found that the resolution was binding on the Minister for the purpose of determining when the shares had been issued (which was relevant to the requirement under the capital gains exemption rule that the taxpayer have owned his shares for at least two years before disposing of them), as it "resulted in the records being amended to give effect to the true facts."

The decision suggests that a self-help remedy may be adequate (i.e. rectification may be unnecessary) where the remedy is merely to correct the recording of a transaction that in fact has already occurred.  Having said that, the taxpayer would have been better off having his shares increased to 100 shares under a stock split once the error was discovered, as this would have avoided such shares being considered by CRA to be newly-acquired by him.

Scott Armstrong.  Summary of Twomey v. The Queen, 2012 TCC 310 under s. 110.6(1) - qualified small business corporation share and General Concepts - Effective Date.