Four individuals held their indirect holdings of 10%, 10%, 5% and 5% of the common shares of a Canadian-controlled private corporation (Structures) through three holding companies (the "Holdcos"). One of them was a joint holding company for the two indirect 5% shareholders. A tax plan drawn up by the tax advisor (Mallette) for the crystallization of the capital gains deduction (CGD) entailed "purification" transactions for first extracting investment assets of Structures as tax-free dividends or deemed dividends. It was the expectation of the shareholders that this reorganization would not trigger significant taxes and that the status of Structures as a connected corporation of the three Holdcos would be maintained. However, the issuance of some Class E shares as part of the implementation of the steps in May 2019 resulted in the three Holdcos' shareholdings in Structures falling below 10%. On December 13, 2019, the parties signed documents to rectify the steps, and on February 7, 2020, brought this application for a judgment of rectification to the implementing documents.
Before granting the requested order, Blanchard J stated (at paras. 66, 70, TaxInterpretations translation):
The de-connection of the corporations prevented the accomplishment of the will of the parties in implementing the reorganization, which was to crystallize the CGD and not pay any tax, other than minimum tax, while benefiting from the CGD. ...
In the circumstances, it is appropriate to grant the request and to correct the documents in order to conform them to what the parties had conceived. This is not the Shareholders attempting to rewrite the tax history of the file.