Brent Kern Family Trust was a case in which the
taxpayer undertook a series of transactions whereby a taxpayer (Mr.
K) completed an estate freeze for two corporations (the underlying
facts are described in detail in the Tax Court decision (2013 TCC 327)).
Following the estate freeze, two family trusts were set up each
with Mr. K and his family as beneficiaries as well as each trust
having a separate corporate beneficiary. Next, each of the trusts
subscribed for common shares in the corporate beneficiary of the
Once the structure was in place, a dividend was flowed through
the structure and, as a final step, one of the trusts paid funds to
Mr. K but relied on the application of subsection 75(2) of the Act
to deem the dividend income received by the trust to be income in
the hands of one of the corporate beneficiaries. Accordingly, if
subsection 75(2) of the Act applied, the income would
not be subject to tax as a result of section 112
of the Act and Mr. K could keep the gross amount of the funds.
In the decision rendered at trial, the Tax Court held that
Sommerer case applied and subsection 75(2) of the Act did
not apply on the basis that the trust purchased
the property in question for valuable consideration and no
"reversionary transfer" occurred.
In Brent Kern Family Trust, the Court of Appeal found
that there was no reviewable error in the trial judge's finding
that Sommerer applied, that the Court of Appeal in
Sommerer "spent considerable time analyzing the text,
content and purpose of subsection 75(2)", and no reviewable
error had been brought to the Court's attention in the present
The Court of Appeal dismissed the taxpayer's appeal and
upheld the Tax Court's decision.
We note also that at least one taxpayer has brought an
application in a provincial court to correct a transaction where
the taxpayer never intended for Sommerer to apply. In Re Pallen Trust (2014 BCSC 405), the
B.C. Supreme Court rescinded two dividends, the effect of which was
to eliminate the tax liability in the trust. Re Pallen
Trust is under appeal to the B.C. Court of Appeal.
Dentons is a global firm driven to provide you with the
competitive edge in an increasingly complex and interconnected
marketplace. We were formed by the March 2013 combination of
international law firm Salans LLP, Canadian law firm Fraser Milner
Casgrain LLP (FMC) and international law firm SNR Denton.
Dentons is built on the solid foundations of three highly
regarded law firms. Each built its outstanding reputation and
valued clientele by responding to the local, regional and national
needs of a broad spectrum of clients of all sizes –
individuals; entrepreneurs; small businesses and start-ups; local,
regional and national governments and government agencies; and
mid-sized and larger private and public corporations, including
international and global entities.
Now clients benefit from more than 2,500 lawyers and
professionals in 79 locations in 52 countries across Africa, Asia
Pacific, Canada, Central Asia, Europe, the Middle East, Russia and
the CIS, the UK and the US who are committed to challenging the
status quo to offer creative, actionable business and legal
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances. Specific Questions relating to
this article should be addressed directly to the author.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
On Thursday, September 22, 2016, Dentons hosted a panel discussion about the management of liabilities and risks associated with environmental crises, including potential liabilities for directors and officers and provided insight into risk and liability techniques associated with environmental crisis management.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).