On July 13, 2012, the Federal Court of Appeal released its
decision in The Queen v. Peter Sommerer 2012 FCA 207
("Sommerer") in favour of the taxpayer. The
decision was eagerly anticipated as it dealt primarily with the
scope of subsection 75(2) of the Income Tax Act (Canada)
(the "Act"). Broadly speaking, subsection 75(2) of the
Act applies where a person transfers property to a trust and the
property or substituted property may revert back to the person,
pass to persons to be determined by that person after the creation
of the trust, or be disposed of only with that person's
consent. Where it applies, subsection 75(2) attributes any income
or loss and any capital gains or capital losses associated with the
transferred property back to the transferor. Unlike other
attribution rules in the Act, subsection 75(2) does not contain an
exception for fair market value transfers. The Canada Revenue
Agency ("CRA") had historically taken the position that
subsection 75(2) could
