Brent Kern – Federal Court of Appeal rejects submission that Sommerer was “manifestly wrong”

The Federal Court of Appeal has affirmed Brent Kern.  A family trust received a surplus-stripping dividend which it sought to treat as being eligible in its hands for the intercorporate dividend deduction because the transactions had been engineered to have that dividend attributed to a family corporation.  However, Sommerer was decided before judgment – so that Bocock J found that s. 75(2) did not apply to the dividend received by the trust as the related shares had been sold rather than contributed to it, i.e., the engineering did not work.

In the Federal Court of Appeal the trust was unsuccessful with an argument that Sommerer was "manifestly wrong."

As noted by CRA at the 2014 STEP Roundtable, there are variants of the scheme which are not caught by Sommerer but for which CRA considers that there is "a strong GAAR argument" for challenge – so that this may not be the end of the saga.

Neal Armstrong.  Summary of Brent Kern Family Trust v. The Queen, 2013 DTC 1249, 2013 TCC 327, aff'd 2014 FCA 230 under s. 75(2).