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Contracts – Rectification – Taxation – Jurisdiction – Whether the decision of the Saskatchewan Court of Appeal effectively nullifies the remedy of rectification in the tax context – Whether the decision the Saskatchewan Court of Appeal establishes appropriate jurisdictional boundaries between the Tax Court of Canada and the provincial superior courts.

The Applicant, Mr. Anderson owned farm equipment and land which were utilized by the Applicant company, L.J. Anderson Farms Ltd. for the purpose of conducting a farming enterprise. The Company was advancing money to Mr. Anderson by way of a shareholder loan. The Applicants’ accountants, Benson Trithardt Noren LLP were concerned the shareholder loan could result in being deemed income to Mr. Anderson in the 2011 tax year. Mr. Anderson met with a partner of the accounting firm on October 6, 2011 to discuss the problem with the shareholder loan and the possibility it could be deemed income in Mr. Anderson’s hands. It was recommended that Mr. Anderson transfer land and equipment he owned personally to the corporation in what is referred to as a s. 85 rollover. The details of the agreement were not fully worked out or committed to writing, but the accountant took notes of what was to be accomplished. Mr. Anderson relied on the accounting firm to make the necessary arrangements to take the matter further. The accounting firm recorded the financial transactions the rollover agreement was to accomplish in the company’s corporate records. Internally, the company’s books reflected the new ownership of the assets and a reduction of the shareholder loan, and the required rollover form was filed with the Canada Revenue Agency (“CRA”). The accountant also began working with Mr. Anderson’s bookkeeper to finalize the rollover transactions and draft schedules for the farmland and equipment summarizing the value of the property which would be transferred to the Company. The accounting firm did not inform Applicants’ law firm of the transactions with instructions on the appropriate documentation to be completed and its effective date. No documents were prepared or executed in 2011.

It was not until May 2013, after CRA notified the Applicants that their 2011 taxation year including the rollover election would be audited, that the accountant realized he had failed to instruct the Applicants’ lawyers to prepare the necessary documentation to effect the agreement. The law firm was then instructed to prepare the rollover agreement and related documents. It did so but utilized an agreement date of January 1, 2011. The CRA reviewed the documents and ruled a proper s. 85 rollover had not been accomplished. As a result, a reassessment would likely result in a substantial increase in Mr. Anderson’s taxable income. The proposed reassessment was delayed in order to allow the Applicants to seek rectification.

The Applicants sought equitable relief from the Court of Queen’s Bench arguing the documents executed in 2013 did not reflect the oral agreement made in 2011. They asked that the documents be rectified and that such relief be declared to have retroactive effect as of October 6, 2011. The chambers judge rectified the documents by correcting the specified effective date from January 1, 2011, to October 6, 2011, but declined to declare the documents to be retroactively valid, binding and effective as of that date. The chambers judge saw the intent of the application for such a declaration as being to prevent the Tax Court of Canada from reviewing any eventual appeal of reassessment. He was not prepared to use the court’s equitable jurisdiction to assist in the tax dispute. The Applicants’ appeal was dismissed.