Dubois – Quebec Superior Court agrees to rectify a trust deed to achieve capital gains treatment (rather than an s. 84.1 application) to a trust sale

An Opco (“Camions”) was owned by family trusts for two brothers (Alain and Régis Dubois). After Alain decided to retire, it was agreed that Alain's family trust would sell its shares in Camions to a newly-formed company for Régis' two sons. Alain agreed to the stipulated sale price on the basis that the gain would be eligible for the enhanced capital gains exemption.

CRA subsequently assessed the transaction on the basis that s. 84.1 applied. In particular, a joint holding company of Alain and Régis (“Gestion”) that was a beneficiary of the trust, did not deal at arm’s length with the nephew’s company. Accordingly, since based on s. 251(1)(b), a person (Gestion) not dealing at arm’s length with the nephews’ company was a trust beneficiary, the sale to the nephew’s company was deemed to be between persons not dealing at arm’s length.

Before confirming the retroactive effect (to immediately before the sale) of the trustees’ written determination to remove Gestion as a beneficiary of the trust, Bélanger JCS stated:

The removal of Gestion was an implicit obligation under the trust agreement, as it … was required to ensure that the sale price of the shares complied with the agreement between Alain and Régis.

Without this implicit obligation, there would be a gap in the contract: the parties agreed that Alain must benefit from the capital gains deduction for him to sell his shares, but they failed to explicitly provide for an essential condition to achieve this agreement, namely removing Gestion from the list of beneficiaries of the Trust so that the proceeds from the sale were eligible for the capital gains deduction. Characterizing the removal of Gestion as an implicit obligation does not add to the contract concluded between the parties. It merely fills the gap in its explicit content due to the nature of the contract agreed upon by the parties.

This sounds like an approach that should have been available in the common-law provinces …

Neal Armstrong. Summary of Dubois v. Dubois, 2026 QCCS 3550 under General Concepts – Rectification.