CRA state that nominal ($1) consideration taints a non-compete covenant and that a Canadian executor taints purely non-resident trusts receiving estate property

Some highlights from CRA’s responses to Questions 9 to 19 posed at the 16 June 2014 STEP Conference:

• Q. 9      For the time being, CRA is continuing not to charge interest where inter vivos trusts have not made instalments.
• Q. 11    When a non-resident individual becomes resident partway through a year, his or her immigrant trust will retroactively become resident from the beginning of the year (see also Q. 10).
• Q. 12    Where the only beneficiaries of an estate which is administered by a Canadian executor are non-resident trusts with no Canadian beneficiaries or trustees, those trusts will be tainted as s. 94 trusts (presumably during the existence of the estate) on the grounds that they received property from a Canadian trust, namely, the estate.
• Q. 13    CRA now is applying Bozzer (re interest and penalties relief).
• Q. 15    The exemption in s. 56.4(6) or (7) from imputed proceeds for a restrictive covenant – which depends inter alia on no proceeds being received or receivable for the covenant – will not be available where a non-compete agreement provides for the payment of nominal ($1) consideration to the covenanter. (It’s not clear whether CRA understands that the $1 is not actually paid.)

We also have expanded our summaries of CRA’s responses to the first eight questions (especially Q. 3 respecting deemed share classes for an LLC and Q. 5 respecting Brent Kern style trusts) based on a more complete record of what CRA said.

Neal Armstrong.  Summaries of 2014 STEP Conference under CRA Roundtables.