Applications for rectification have become an increasingly popular tool for resolving tax disputes. An application for rectification is made by way of a court order under the respective provincial superior court to correct a written agreement, document or instrument that does not properly record what the parties intended. Although the parties may attempt to self-correct the error, a rectification order is required to make any change that is binding against third parties, such as the Canada Revenue Agency or a provincial tax authority. As such, a taxpayer would normally seek a rectification order to correct a failure in the drafting of that written agreement, document, or instrument written which resulted in unintended tax consequences.
In general, a court will allow an application for rectification where the following requirements are met:
1. There is a prior agreement between the parties;
2. There is a common intention agreed to by the parties;
3. A document that does not properly record or reflect the common intention; and
4. A common or mutual mistake that causes the document to not reflect the common intention.
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