In 2005, the taxpayer sold 78 of his 100 common shares of an Ontario corporation ("115") to the other shareholder ("D.K."), and claimed the capital gains exemption. Both shareholders had believed from the time of the organization of 115 in 1995 that they each held 100 common shares of 115, and this belief was reflected in 115's financial statements and accounting ledgers. However, in connection with the sale in 2005, they discovered that (due to some communication difficulties relating to a change in the taxpayer's counsel) the corporate minute books recorded only one share as having been issued to each of them. A shareholders' resolution was passed "acknowledging the initial intent of the parties and issuing share certificates totaling 99 common shares of 115 to each of the Appellant and D.K. to correct the error without further consideration to be paid for them" (para. 9). CRA denied substantially all of the taxpayer's capital gains exemption claim on the basis that 77 of the 78 shares sold by him had been issued within 24 months of the time of their disposition, contrary to the requirement of para. (b) of the qualified small business corporation share definition.
Pizzitelli J. found that in fact all 200 common shares (including those sold by the taxpayer) had been issued in 1995. He stated (at paras. 19, 24):
We frankly have inconsistent corporate records at best, but the reality is that the correcting resolution quite clearly speaks to the other documents, clearly superseding them for the simple reason of correcting an error. ...
...The correcting resolution resulted in the records being amended to give effect to the true facts.
Accordingly, the taxpayer satisfied the 24-month requirement and was eligible for the capital gains exemption.