Alberta Court says rectification requires more than “general intent”

In Harvest Operations Corp v Canada (Attorney General), 2015 ABQB 327, the Alberta Court of the Queen’s Bench denied an application for rectification, holding that parties who are seeking rectification “need to demonstrate more than just a general intent to minimize the tax burden or other consequences.”

In 2005, the taxpayer engaged in an acquisition and restructuring. Later, the CRA audit found errors in two of the transactions, which resulted in increased tax. The taxpayer applied to rectify these errors, stating that it was always the parties “intent to complete the transaction with the general goal of minimizing the tax burden,” and that the errors occurred due to an unanticipated event prior to the closing (a creditor demanded repayment of an outstanding loan from one of the entities involved in the restructuring).

In deciding the application, the court ruled that it is not sufficient for a taxpayer to show a general intent related to minimizing tax in order obtain a rectification. Taxpayers must instead show evidence that they had a plan to implement the specific step or transaction in question, but that this intent was not captured in the closing material. In this case, the taxpayer failed to show evidence that it intended to carry out the specific transactions it sought to implement through the rectification application.

This decision is significant in that is explicitly rejects the view expressed in other cases that general intent to minimize tax consequences can be a sufficient basis for rectification. Further, the reasons for judgement provide a useful summary of the leading decisions on the law of rectification in the tax context.