An LLC manager with a carry holds two classes of shares, coopered-up Brent Kern schemes do not work, and s. 55(5)(f) designations are optional

Stephanie Dewey has summarized the first eight CRA responses at the 2014 STEP CRA Roundtable (with the other 10 still to come).  Some highlights:

• Q. 3      Where a subsidiary LLC has a 3^rd-party manager whose equity interest has a carry and an entitlement to a 2% "income allocation" amount, with all other distributions being split between Canco and the manager on a pro rata basis, in applying draft s. 93.3 CRA likely would consider that the manager has a special deemed class of shares to which the carry and quasi-fee interest are attached, and that there is a second ordinary deemed class which is held on a pro rata basis by Canco and the manager.
• Q. 5      CRA does not consider that a Brent Kern (or Pallen) style scheme to strip corporate surplus by exploiting the s. 75(2) attribution rule will work even if the Sommerer problem with the scheme is fixed.
• Q. 7     In light inter alia of Nassau Walnut, CRA’s practice is to only apply s. 55(2) to the excess of a dividend over safe income on hand, so that a s. 55(5)(f) designation appears to be optional.

Summaries of Stephanie Dewey, "2014 STEP Canada Roundtable – Part 1," Tax Topics (Wolters Kluwer CCH), No. 2208, July 3, 2014, pp. 1-6 under 2014 STEP Conference.