A Missed Trust Distribution and the 21 Year Rule

Decimo Bosa Family Trust v. The King 2026 TCC 191

Summary

The Decimo Bosa Family Trust deed called for a distribution in May 2008, more than nine months before the trust’s 21st anniversary. The trustees missed the deadline. Justice Goldbach upheld a reassessment that included a capital gain of $2,947,990, of which $1,473,995 was taxable. The Court held that the trustees’ inaction did not trigger the deed’s fallback clause. The more questionable part of the decision is the Court’s conclusion that even if the clause had taken effect, the trustees still had discretion to decide what each beneficiary would receive.

Background

The trust was settled on February 15, 1988 for Decimo Bosa, his wife and their three children. Clause 2.03 required the trustees to divide the remaining property on May 1, 2008, unless all the property had already been distributed. It gave them express discretion to choose among the named beneficiaries and determine their shares. No division occurred by the deadline. The trustees still held legal title to the shares on February 15, 2009. The shares of one company alone were worth $2,948,000 and had an adjusted cost base of $10 (paras. 12 and 14–23).

Clause 2.04 provided for a division among the persons who would inherit if Decimo had died intestate in British Columbia at the date of division, assuming the settlor did not survive him. It applied if the preceding trusts failed because no person became entitled at the time of division. The beneficiaries first sought rectification and declarations in the British Columbia Supreme Court. That court declined to exercise jurisdiction and left the interpretation and vesting questions to the Tax Court (See Bosa v. Canada 2025 BCSC 1284 at paras. 43–51, as discussed at paras. 5–11 of the Tax Court reasons).

Decision and Analysis

Subparagraph 104(4)(b)(ii) of the Income Tax Act generally triggers a deemed disposition at fair market value on a trust’s 21st anniversary. Paragraph (g) of the definition of “trust” in subsection 108(1) can exclude a trust for this purpose if all interests in it have vested indefeasibly, subject to statutory exceptions. The parties agreed that the vesting analysis in Boger Estate v. Canada, [1993] 2 CTC 81 (FCA), could guide that inquiry (paras. 47–55).

Justice Goldbach read clause 2.04 as addressing a failure of entitlement. The beneficiaries remained eligible under clause 2.03, and the trustees had simply failed to perform the required division. The Court also rejected the alternative argument that the property reverted to the settlor, pointing in part to clause 1.07, which expressly barred reversion. It declined to decide the assessment on the assumption that a superior court would have granted equitable relief. The appeal was dismissed and costs were reserved (paras. 65–75, n. 28 and paras. 77–96).

Where the Reasons Fall Short

The Court read discretion into the fallback clause

Paragraph 76 says clause 2.04 preserves the trustees’ discretion to allocate shares. The language reproduced in the reasons supplies no such discretion. Clause 2.03 expressly lets trustees select recipients and proportions. Clause 2.04 directs them to divide the property among the hypothetical intestate heirs, and the Court itself had already identified section 85(5)(b) of the former Estate Administration Act as governing the division if the fallback applied. The reasons do not seem to reconcile those two propositions.

A separate question was whether the reference to the date of division postponed identification of the heirs or whether entitlement was already fixed and the trustees simply had to carry out the division. Under Boger, the distinction between a condition that must occur before entitlement arises and a step that implements an existing entitlement matters. Paragraph 76 treats the direction to divide as a condition precedent without explaining why the division would create the interests. The alternative holding therefore rests on a discretion the Court did not identify in the deed. That error becomes material if the Court’s primary reading of the trigger is wrong.

The reasons leave the effect of the deadline unresolved

The Court distinguished trustees who could not distribute from trustees who failed to do so.  It leaves one question unanswered, however. Clause 2.03 required a division on May 1, 2008, and the Court acknowledged that the deed contained no express power to distribute afterward. The reasons do not explain whether the date fixed the time for performing a continuing duty or also limited the trustees’ power of selection. The answer bears on whether anyone had become entitled when the deadline passed. Eligibility for selection and an enforceable entitlement to a share are distinct. The Court’s finding about why one trustee failed to act cannot resolve what the deed did when neither trustee acted.

The preamble cannot carry the weight placed on it

Paragraph 70 treats Decimo’s exclusion under the fallback as contrary to the trust’s stated purpose of benefiting the named beneficiaries. But clause 2.03 itself expressly allowed the trustees to exclude any one of them, and clause 2.04 expressly uses Decimo’s hypothetical death to identify the fallback recipients. His exclusion therefore offers little support for a narrow reading of the trigger. The more persuasive basis for the result is the particular kind of failure described in clause 2.04.

Key Takeaways

For trustees, the practical lesson is to track the deed’s distribution date separately from the statutory anniversary and document how and when any discretion was exercised. For counsel, Bosa is strongest as a decision on the wording of this fallback clause. Its alternative vesting analysis is weaker where the deed itself fixes the beneficiaries’ rights and leaves the trustees with the work of distributing the property.