Words and Phrases - "apparent contract"

Opco, which acquires an immovable, shortly thereafter agrees with an unrelated individual to pay 40% of the annual net rental income to the individual. Will the 40% amounts be excluded from its income or qualify for deduction therefrom? CRA stated:

[T]he C.C.Q. allows parties to modify the provisions of an apparent contract by means of a contract commonly referred to as a counter letter. …

Between the parties, a counter letter prevails over an apparent contract. …

Generally, the CRA agrees to recognize a counter-letter for tax purposes to the extent that:

• the counter letter is concluded before or at the same time as the apparent contract and does not constitute an ex post facto arrangement;
• the counter-letter is not a sham;
• the counter-letter is disclosed to the CRA and the relevant documents are sent to the CRA at the appropriate time (usually when filing the relevant tax returns);
• the facts relating to the particular situation corroborate the parties' legal relationships to the counter-letter.

In view of the foregoing and since it appears that the Agreement did not occur before or at the same time as the apparent contract, we are of the opinion that the Agreement cannot be characterized as a counter-letter within the meaning of the CCQ. Consequently, the sharing of annual net rental revenues between Opco and the Individual, as provided for in the Agreement, could not be binding on the CRA, which would rely, a priori, on the provisions of the apparent contract.