Two of the petitioners were two brothers (Thomas and Michael) who each owned 50 of the 100 issued and outstanding common shares of a holding company (Crean Holdings). On May 27, 2016, they entered into an agreement in principle for Michael to purchase all of Thomas’ interests in the Crean Group, “direct or indirect” for the sum of $3,200,000, and providing that “the transaction will be structured, to the extent possible, so that Tom receives capital gains treatment for tax purposes.” Following advice from their tax advisor and on August 31, 2016, Crean Holdings paid capital dividends to them, Michael rolled his shares of Crean Holdings under s. 85 into a new personal holding company (1086881) for common shares, Thomas then sold his 50 common shares of Crean Holdings to 1086881 for a $2.75 million promissory note of 1086881.
The tax advisor subsequently realized that these transactions gave rise to a deemed dividend under s. 84.1 to Thomas, and the parties petitioned to have the sale agreement rectified by adding Michael as a party and providing for a sale of Thomas’ 50 shares directly to Michael in consideration for a $2.75 million promissory note of Michael and for the immediate on-sale by Michael of those shares to 1086881 in consideration for 1086881 assuming the promissory note.
In granting the petition, Burke J accepted the tax advisor’s testimony that, consistent with the agreement in principle, he had been instructed to provide for a direct sale and that the failure of the documents to so provide was an error on his part. She stated (at paras. 73, 85):
Ultimately, the respondent’s position in effect appears to be that the doctrine of rectification is limited to clerical error. I disagree. …
Thomas Crean and Michael Crean had a prior definite and ascertainable agreement. This is unlike Fairmont Hotels and Jean Coutu. The Agreement in Principle is sufficient evidence to grant a rectification remedy.