EDGE Magazine | Q3 2011
The Court referred to the "three certainties" to create a trust, being certainty of intention, subject matter and objects. The Court concluded by stating that in order for a trust to be found, the following "essential ingredients of a trust" must be found:
A. Segregated property; B. Owned by a person having control of the property (trustee); C. For the benefit of persons (beneficiaries); D. To whom the trustee has a fiduciary duty enforceable by the beneficiaries.
The Court went on to examine the characteristics of the Private Foundation, as defined by its terms, and found that the beneficiaries of the Private Foundation possessed sufficient rights that resemble those
found in a Canadian trust. However, having found that there was a trust, the Court went on to find that the attribution rules under s. 75(2) of the Canadian Income Tax Act did not apply, as Mr. Sommerer was not the settler of the trust.
As stated, the Court went on to consider a number of other issues: issues that will not be discussed here, other than to mention that they included an argument that the Private Foundation was an agent of Mr. Sommerer. The Court rejected this submission. The Private Foundation was sufficiently independent of Mr. Sommerer, and Mr. Sommerer would not be liable for the Private Foundation's actions, such that a finding of agency was avoided.
Ultimately, the Court held that the Canadian Government did not have the jurisdiction to tax Mr. Sommerer with respect to his interest in the Austrian "trust".
The cautionary tale of the Sommerer decision is to seriously consider the vehicle to be used for holding assets, and the effect that the terms of the arrangement will have on the tax treatment in various jurisdictions.
Paul Trudelle Canada
Hull & Hull
PTrudelle@hullandhull.com
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