The Resource R v Sommerer : [2012] FCA 207

R v Sommerer : [2012] FCA 207

R v Sommerer : [2012] FCA 207
R v Sommerer : [2012] FCA 207
Judgment by the Federal Court of Appeal, judgment date 13 July 2012. Herbert Sommerer created an Austrian Stiftung (foundation) and nominated his son Peter as 'ultimate beneficiary', the person who would receive the assets of the foundation if it were dissolved. Peter was resident in Canada. Some time later, Peter sold two tranches of shares to the foundation for over Can$1.87m, their fair market value. The foundation was subsequently able to sell the shares for considerably higher prices and realise substantial capital gains. The Canadian Revenue authorities then assessed Peter for tax on the capital gain on the basis of s 75(2) of the Income Tax Act which provided that where property was held on trust but could revert to the person from whom the property was received, any capital gain from the disposition of the property was deemed to be a taxable capital gain of the person concerned. Peter Sommerer appealed to the Tax Court which held that s 75(2) did not apply to a person who sold property to the trust for value and the Revenue appealed to the Federal Court of Appeal, which dismissed the appeal. Section 75(2) read in its proper context and in the light of its proper purpose was intended to ensure that a taxpayer could not avoid the income tax consequences of the disposition of property by transferring it to another person in trust while retaining a right of reversion or a power of disposition of the property or property for which it might be substituted. It did not apply in respect of property that had been purchased by a trustee from a beneficiary at fair market value. Otherwise, the same capital gain could be attributed to two taxpayers?for example, the person who contributed cash to the trust (the initial property), and the person from whom the trust purchased property (the substituted property) using the initial property for payment. Peter Sommerer had not endowed the Stiftung with any property and it had purchased the shares in part with money from the original endowment by Herbert Sommerer. Section 75(2) did not apply to attribute any capital gains by the Stiftung to Peter Sommerer
Citation source
In: International tax law reports. - London. - Vol. 15 (2012),
Nikolakakis, A
Geographic coverage
  • North America
  • Europe
  • European Union
Language note
Baker, P
  • case law
  • tax treaty
  • tax avoidance
  • trust
  • foundation
  • income tax
  • capital gains
R v Sommerer : [2012] FCA 207

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