CRA considers a NAL transfer of lands, but with rights to rents being retained, to render the rents taxable to the transferee, not transferor

An individual sold leased land in Quebec to a non-arm’s length corporation of which he was not a shareholder on that basis that he retained the right to all the rents. After finding that the rentals received by the corporation would probably not have the "quality of income” since their receipt was subject to the obligation to pay them over to the individual (see Premium Iron Ores, Wilson, Leonard Pipeline, Canadian Fruit, see also Minet, Wipf, cf. Canpar.) CRA went on to find that s. 56(4) would apply to include the rents in the income of the corporation - and then quoted its statement in IT-440R, para. 10 that:

where the transfer or assignment of the right to an amount that is income does not constitute a deliberate attempt to evade or avoid tax, the amount will be included only in the income of the transferor.

I don’t know about Quebec, but it is not clear that it would be appropriate to apply s. 56(4) in a common law province. It might be considered that the corporation never got any right to the income in the first place, so that there was never a transfer by it of that right back to the individual.

Neal Armstrong. Summaries of 28 October 2016 External T.I. 2016-0654331E5 F under s. 9 – nature of income, s. 18(1)(a) – incurring of expense, s. 56(2) and s. 56(4).