Budget 2013: A Response To Sommerer

As noted in Tax Update September 2012, the Federal Court of Appeal (FCA) determined in Sommerer¹that subsection 75(2) of the Income Tax Act (Canada) (ITA) did not apply to a fair market value sale of property to a trust.² As a consequence, capital gains and other income of a non-resident trust could escape taxation in Canada even where a resident of Canada was a beneficiary of the trust and was the person from whom the trust had acquired the property that gave rise to the gain or other income.

In Budget 2013, the government stated that the decision in Sommerer "was not in accordance with intended tax policy." Accordingly, Budget 2013 proposes to amend the provisions of the ITA dealing with non-resident trusts to ensure that such gains and income would be subject to taxation in Canada.