Pallen - B.C. Supreme Court rescinds dividends which no longer worked for surplus-stripping following Sommerer

A plan (similar to Brent Kern) was designed to permit a family trust to extract corporate dividends free of tax by engaging s. 75(2) to attribute those dividends to a personal holding company (a trust beneficiary), which would enjoy the s. 112(1) deduction.  This plan did not work given the subsequent finding in Sommerer that s. 75(2) did not apply to fair market value sales to a trust.

The Court applied Pitt to find that it generally will be appropriate to rescind a "voluntary disposition" (such as a gift, trust settlement or dividend) for a mistake of fact or law (including a mistake as to tax consequences) where the consequences of that mistake are sufficiently grave.  The dividends were rescinded.

Neal Armstrong.  Summary of Re: Pallen Trust, 2014 BCSC 305 under General Concepts – Rectification.