Evans – Ontario Superior Court grants an order rectifying a trust allocation resolution so as to set out specific amounts

After a discretionary family trust realized a capital gain from a share sale, the sole trustee passed a resolution in that year providing that “[t]he income of the Trust be allocated to the [three stated] Beneficiaries of the Trust payable by way of demand Promissory Note in such amounts to be determined when the income of the Trust is ascertained … .” Such promissory notes were issued three months later. CRA denied the s. 104(6) deduction for the amount of the taxable capital gain allocated to the three beneficiaries because the resolution did not specify the amounts to be payable to them.

Rady J found that the evidence established that there was an agreement to allocate at least $375,000 (equal to the taxable capital gains deduction) to each of the three beneficiaries, although there was insufficient evidence to establish that the entire taxable capital gain was agreed to be allocated to them. Accordingly, she granted an order to rectify the resolution so as to provide that $375,000 of the taxable capital gain was to be allocated to each of the three beneficiaries, stating in this regard:

I am satisfied that the applicants are not attempting to retroactively amend their agreement to achieve beneficial tax consequences. Rather, they seek to rectify the resolution itself because it did not sufficiently express the agreement they had reached.

She further indicated that the application should not be dismissed on the basis of the trust having the alternative remedy of suing the professional advisors. She described as “apt” the statement in the dissenting reasons of Abella J in Fairmont that the court should not force on the parties an alternative that is neither practical nor certain.

Neal Armstrong. Summary of Evans v. Attorney General of Canada, 2024 ONSC 1955 under General Concepts – Rectification.