The decision of T.D Ray, J. of the Superior Court of Ontario in Canada (Atty-General) v. Brogan Family Trust (2014 ONSC 6354) appears to set new limits to the requirement to provide notice to CRA when seeking a rectification order from the Superior Court. CRA had moved to set aside an order to rectify the deed settling the respondent, a family trust, on the basis that CRA had not been notified of the proceedings.
The judge concluded that “[CRA] is only required to be given notice of a proposed rectification proceeding when [CRA]’s legal interests might be directly affected by the outcome of the rectification proceeding, such as where [CRA] is a creditor and the rectification would affect its rights. Otherwise, [CRA] might be made a party when so advised by counsel that notice should be given to [CRA].”
The judge’s conclusion that CRA’s interests were not affected was because no assessment had been made against any creditor; the rectification was sought before the transaction at issue was closed and before the end of the taxation year of all the entities in question. Since there was no amount owing, CRA was held to have no rights in the issue.
In addition, CRA was adjudged to have failed to bring the motion “forthwith” due to a ten-month delay that CRA attributed to auditor inexperience, including two months where the facts were known to CRA’s legal counsel.
[LATER EDIT: John Loukidelis points out quite cogently that clearly, liability to tax–distinct from a debtor-creditor relationship, perhaps, but still carrying with it legal interests–frequently arises in advance of an assessment, and that this is clearly established by the Income Tax Act.]