The petitioners were trustees of a family trust which had been formed in order to permit capital gains on any subsequent sale of the shares of the private company with which the trust had been settled to be allocated amongst the children beneficiaries, thereby multiplying the utilization of the capital gains exemption. Such a sale and allocation in fact occurred two years later. However CRA then assessed on the basis that as the father, who had settled the trust, was included as a beneficiary and had a reversionary interest in the shares, s. 75(2)(a)(i) applied to deem all the trust income to be attributed to the father, so that such income could not be allocated instead to the children beneficiaries. The trust deed was then rectified by order of the BC Supreme Court (with CRA not opposing on being notified of this rectification application) to correct these errors.
However, rather than reversing its assessments, CRA confirmed the reassessments. It informed the father and trust that it had identified further errors in the trust deed (namely, the father could become sole trustee and therefore have the power to direct the disposition of, or the beneficiaries in, the shares, so that s. 75(2) continued to apply on the basis of s. 75(2)(a)(ii) or (b).) The trustees applied for a second rectification of the trust deed, this time with the opposition of the Justice Department.
In allowing the application, Dorgan J found that the multiplication of the capital gains exemption was an objective of the trust that had been pursued from its inception, and that this finding of a specific intention was sufficient to allow rectification.