CRA explains that it generally requires LCs to secure exit tax

We have published the questions posed, and a summary of the answers given, at the 2021 STEP Roundtable held yesterday.

Q.1 dealt with a Canadian-resident inter vivos personal trust that realized gain under s. 128.1(4) as a result of its central management and control moving to outside Canada, and wishes to post security to defer the payment of the exit tax.

CRA indicated that the required terms for security agreements are based on the nature of the security provided and do not typically differ for trusts and individual taxpayers. However, it would not normally relax its requirements to receive a letter of credit or a letter of guarantee, and considers a secured line of credit to not be adequate security given that its typical features do not provide CRA with sufficient certainty of future payment, if required.

Neal Armstrong. Summary of 15 June 2021 STEP Roundtable, Q.1 under s. 220(4.5).