Félix St-Vincent Gagné

The Appellant trust allocated dividends to a beneficiary and deducted the amounts under subsection 104(6) of the Income Tax Act.

The Minister reassessed to deny the deductions, arguing the allocations were invalid and absolutely null because they violated the trust deed and article 1275 of the Civil Code of Québec by effectively making the beneficiary's sons de facto trustees.

The Tax Court of Canada allowed the appeal, finding that the sons did not become de facto trustees and the independent trustees did not delegate their discretionary powers.

The Court also held that even if article 1275 had been violated, the sanction would be relative nullity, which the Minister lacked standing to invoke.

The appellant appealed a section 160 assessment holding him liable for the tax debt of a corporation of which he was a 50% shareholder and director.

The corporation had paid him dividends at a time when it owed tax.

The Tax Court of Canada found that the appellant and the corporation were not dealing at arm's length in fact, as the appellant and the other shareholder acted in concert and without separate interests in deciding to declare the dividends.

The appeal was dismissed.