Have you ever asked, "Can I get a do-over on that?"
In business, "do-overs" don't get to happen very often. Sometimes, though, a mistake is made on a business transaction that has undesired consequences for one or both parties. There are instances where the effective date or other terms of the transaction mean substantial extra taxes to pay.
While the parties might agree to "correct" the documents by redating them, I'm told by lawyers this is not the right way to go about it.
Such after-the-fact changes often won't hold weight with the Canada Revenue Agency. According to Winnipeg lawyer Sergio Pustogorodsky of Thomson Dorfman Sweatman LLP, "In such cases, CRA usually takes the position that the parties cannot rewrite history and the unintended tax results remain."
Is there a solution? Perhaps.
According to Mr. Pustogorodsky, superior provincial courts can rewrite history by means of a rectification order, and this "do-over" is binding on third parties like CRA.
He says that this important principle comes from English Courts of Equity, as a means of granting relief where the document signed by the parties did not accurately reflect what the parties had agreed to.
In recent years, Mr. Pustogorodsky said, "the scope of the remedy has been expanded to permit the rectification of a transaction where it was done in such a way that the intended tax benefits or results were not achieved, but could have been achieved had it not been for the defective implementation." Defective planning still cannot be remedied with a rectification order.
He has a number of examples of transactions that have been corrected by such orders.
He points out that "rectification orders have effect as of the original date of the documents or transactions being rectified and are not variations or amendments." This is important, as variations or amendments do not necessarily have retroactive effect. As Mr. Pustogorodsky put it, "amendments or variations of agreements do not change history; court orders do."
A last important point is to move quickly when an unintended effect is discovered, as rectification orders can be refused on the grounds of undue delay.
On your personal taxes, the usual remedy is to file an adjustment, using form T1-Adj.
As the stock markets lurch toward the end of another quarter, it looks like we are approaching another period of maximum worry. The storm clouds of inflation and the negative effects of high oil prices on corporate profits have been gathering on the horizon for some time. They have recently become obvious to investors, who have begun to sell stocks again.
The S&P TSX 300 index is down over four per cent in the last week after a pretty positive quarter and a record high hit on June 18.
To use a technical term, these short-term corrections suck. However, the old principle applies that the best time to buy stocks is after everyone else has sold and the prices are a bargain.
Are we at that point yet? I don't know, and I'm not sure if anyone does. However, I'm pretty sure that the market will be higher two years from now than it is today, even though we may have some more rough water in the short term.
Speaking of rough water, we really enjoyed some high winds on the weekend, competing in our first-ever sailing race. I have discovered, to my joy and relief, that sailors are an extremely open and welcoming group, only too happy to help out the new idiots on the block as they bumble their way through.
My thanks go out to the generous folks at both Northern Harbour and Gimli Yacht Club for their hospitality and patience.
Have a great summer weekend!
David Christianson is a fee-only financial planner and investment counsel with Wellington West Total Wealth Management Inc. His column appears Fridays. You can e-mail him at dchristianson@wellwest.ca.
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