Slightham – Ontario Superior Court of Justice agrees to rectify family trust deeds to reflect the drafting contemplated in the original tax plan
In order that s. 75(2) would not apply to the corporate beneficiary (Holdco) of two family trusts, the tax plan contemplated that Holdco would be prohibited under the trust deeds from receiving any income or capital derived from itself. However, due to a drafting error, a reference to the underlying Opco held by the trusts was mistakenly added as one of the parties from which Holdco could not receive income or capital.
This mistake was discovered when CRA denied the s. 104(6) deduction for dividends from Opco distributed by the trusts to Holdco, on the grounds that such distributions were prohibited by the trust deeds. CRA refused to accept that the trust deeds could be amended pursuant to their amendment provisions to correct this error nunc pro tunc.
After noting that the evidence clearly supported the above nature of the drafting mistake, Osborne J allowed the trusts’ application to amend the declarations of trust to delete the references to Opco, stating:
[T]he parties are not changing their antecedent agreement. Rather, they are seeking the assistance of equity to change the written instrument that did not at the time it was executed, and does not now, properly and accurately reflect the agreement of the parties that has remained unchanged throughout.
Neal Armstrong. Summary of Slightham et al. v. AGC, 2023 ONSC 6193 under General Concepts – Rectification.