http://decision.tcc-cci.gc.ca/site/tcc-cci/decisions/en/item/63603/index.do 
The Brent Kern Family Trust v. The Queen[1] (October 17, 2013) involved a corporate reorganization and trust structure that was clearly designed to benefit from the application of the attribution rule in subsection 75(2) of the Income Tax Act:[2]
75(2) Where, by a trust created in any manner whatever since 1934, property is held on condition
(a) that it or property substituted therefor may
(i) revert to the person from whom the property or property for which it was substituted was directly or indirectly received (in this subsection referred to as “the person”), or
(ii) pass to persons to be determined by the person at a time subsequent to the creation of the trust, or
(b) that, during the existence of the person, the property shall not be disposed of except with the person’s consent or in accordance with the person’s direction,
any income or loss from the property or from property substituted for the property, and any taxable capital gain or allowable capital loss from the disposition of the property or of property substituted for the property, shall, during the existence of the person while the person is resident in Canada, be deemed to be income or a loss, as the case may be, or a taxable capital gain or allowable capital loss, as the case may be, of the person.
The reorganization was effected in 2004:
[7] Counsel greatly shortened the proceedings through two Statements of Agreed Facts applicable to each phase of the hearing. The material facts relevant to this appeal concerning the transaction structure are:
1. From 1997 to July 2004 Mr. Kern was originally the sole shareholder and controlling mind of Wilf’s Oilfield Services (1997) Ltd. (“OPCO”);
2. An Alberta limited company, 905558 Alberta Ltd., was created in November of 2000 (“Holdco”);
3. Two trusts were created on July 30, 2004: the Appellant, the Brent Kern Family Trust (the “Brent Trust”), and the Kern Family Trust (“the Kern Trust”);
4. Mr. Kern ordered his affairs such that he became a preferred shareholder in OPCO and Holdco. Mr. Kern and OPCO were beneficiaries, along with other family members in the Brent Trust, whereas Holdco, Mr. Kern and family members were beneficiaries in the Kern Trust;
5. Through share exchanges, the common shares previously held by Mr. Kern in OPCO and Holdco, were exchanged for preferred shares; and
6. For valuable consideration, OPCO common shares were sold to Kern Trust and similarly Holdco’s shares of OPCO were sold to the Appellant, Brent Trust.
The dividends that were at issue in this appeal were paid in 2005 and 2006:
[8] The material facts concerning the reassessed transactions, which occurred after the creation of the structure, described in paragraph 7 above are essentially the same in each of the two reassessed taxation years, namely:
2005
1. OPCO declared a dividend in favour of Kern Trust for $245,000.00;
2. Kern Trust allocated $245,000.00 to Holdco;
3. Holdco declared a dividend on the common shares owned by the Brent Trust in the amount of $245,000.00;
4. The Appellant contends that subsection 75(2) applies and deems the dividend of Brent Trust to be received by OPCO (the “Attributed Dividend”), because OPCO is the person which transferred the property to Brent Trust while OPCO was an enduring potential beneficiary;
5. On that basis, the Brent Trust reported no income from the declared dividend on its T-3 trust income return;
6. This Attributed Dividend in OPCO’s hands was a dividend received by a corporation pursuant to section 112 of the Act which section affords the non-taxable payment of inter-corporate dividends; and
7. The amount of the dividend, $245,000.00 (“Dividend Amount”) was allocated and paid to Mr. Kern, who in turn lent the Dividend Amount to OPCO.
2006
Similar transactions and income tax reporting occurred in 2006, save and except that the amount of the 2006 dividend declared was $155,000.00 and through incremental reduction, the amount ultimately lent to OPCO by Mr. Kern was $151,591.99.
Well after the planning was implemented, in 2012 the Federal Court of Appeal in Sommerer v. The Queen[3] came down with a decision that subsection 75(2) did not apply to transfers of property for valuable consideration. If Sommerer applied then the dividends paid in 2005 and 2006 would not be sheltered from tax.
The taxpayer’s attempts to distinguish the Sommerer decision were unsuccessful:
[23] In totality, despite this valiant effort to distinguish this appeal from the law established in Sommerer, for the following reasons this Appellant cannot succeed in its appeal.
A. Complexity of Facts in Sommerer
[24] Certainly at the trial level, as acknowledged and outlined herein, Justice Miller weeded through many issues. However such factual findings were not overturned on appeal. Before the Federal Court of Appeal, the factual finding of a trust was not pleaded and the applicability of subsection 75(2) was the sole determinative issue upon which the Federal Court of Appeal deliberated. The facts in the present case are not distinguishable from those in paragraph 57.
B. Double Taxation made the Federal Court of Appeal “do it”
[25] It may be argued that the possibility of double taxation was a collateral issue which caused the Federal Court of Appeal and the trial judge to avidly pursue the matter, but such issue was neither prominent nor particularly referable in the analysis, interpretation and ultimate decision regarding subsection 75(2) as outlined at paragraph 57 and paragraph 91 of the Sommerer appeal and trial decisions, respectively.
C. Universal Applicability of subsection 75(2) when property sold is obiter dicta
[26] The absence of intent and subjectivity is the hallmark of subsection 75(2). The Federal Court of Appeal stated strongly that situational applicability of the subsection is unacceptable because it applies to every situation it describes. While perhaps unfair, this was the very submission of the Appellant prior to the decision in Sommerer in the context of subsection 75(2)’s automatic and objective application. Legally, the only difference now is that a genuine transfer for value to a trust by a beneficiary, by virtue of Sommerer, no longer falls within the ambit of the automatic attribution rule.
D. Sommerer does not contain a relevant textual, contextual and purposive analysis of subsection 75(2)
[27] While making reference to the lack of historical legislative history pleaded in Sommerer, counsel for the Appellant in this appeal made extensive submissions on such historical context. A review of both the trial and appeal decisions in Sommerer reveals that both the trial judge (paragraphs 87 through 110) and the appeal court (paragraphs 44 through 59) spent considerable time in analysing the text, context and purpose of the subsection, or at least sufficiently enough, in order to establish the foundation and the definitive decision that subsection 75(2) does not include as a “person” a beneficiary who sells property to a trust for valuable consideration.
IV. Conclusion
[28] Appellant’s counsel also raised reasons why he felt the decision in Sommerer is wrong as opposed to inapplicable: insufficient contextual and purposive analysis, use of faulty hypotheticals, unintended universal removal of a common type of transaction from the ambit of subsection 75(2) and possibly absurd future consequences as a result of the decision. This Court’s response is simple. The Tax Court of Canada is not a review court for unequivocal decisions of the Federal Court of Appeal. This Court is required to follow and apply the statements of law handed down by the Federal Court of Appeal; stare decisis is a hierarchal process. The ratio decidendi within Sommerer, as outlined in paragraph 57 of the appeal decision, now comprises pronounced law; challenges to such required deference by this Court are also part of a well known hierarchical process.
[29] To encapsulate, the Appellant trust purchased 100 common shares of Holdco (905558 Alberta Ltd.) for valuable consideration from OPCO (Wilf’s Oilfield). OPCO was also an enduring beneficiary under the Appellant trust. As such, subsection 75(2) does not apply to the dividend declared on the Holdco shares which comprised the property. The dividend income is not attributable to OPCO, but instead remains to the benefit and for the account of the Appellant.
In light of the court’s conclusion based on subsection 75(2) of the ITA it found it unnecessary to deal with the Crown’s alternative argument based on GAAR.
[1] 2013 TCC 327.
[2] R.S. C. 1985, c. 1 (5th Supp.), as amended (the “ITA”).
[3] 2012 FCA 207, 2012 DTC 5126 (July 13, 2012).