Fiducie Historia – Federal Court of Appeal finds that, notwithstanding their agreement somewhat to the contrary, trustees had not delegated their trustee function to others

A discretionary trust received dividend income, which it allocated and distributed to one of its beneficiaries ("Father"). In an attempt to avoid a change in control of the corporation held by the trust due to an associated redemption of shares of the corporation held by family members, the trustees entered into an agreement with two beneficiaries, who were sons of Father, under which the trustees undertook to exercise their powers according to the instructions given by the sons and to not make decisions without their prior consent – and to resign in the event of disagreement with the sons' instructions.

However, this caused CRA to conclude that the trustees had abdicated the exercise of their powers to the sons, so that the sons had become de facto trustees, contrary to Art. 1275 of the Civil Code. This, in turn, signified that the purported trust distributions were void, so that no amount was deductible under s. 104(6).

The Tax Court found that, notwithstanding this agreement, the trustees continued to exercise their powers as trustees and that the sons did not, in fact, act as trustees. Thus, there was no violation of Art. 1275.

Before dismissing the Crown’s appeal, Goyette JA first noted that the terms of the agreement with the sons were ambiguous, and then indicated that the Tax Court was called upon to take the actual facts into account, so that it was entitled to decide based on its finding that in fact their had been no abdication of the exercise of trustee powers. Furthermore, no palpable and overriding error in the Tax Court’s assessment of the facts could be identified.

Neal Armstrong. Summaries of The King v. Fiducie Historia, 2025 CAF 177 under s. 104(6) and s. 171(1).