Upon a sale by A of leased land to a non-arm’s length corporation (Corporation A) in which A did not hold any shares, A and Corporation A agreed to a redistribution of income in which Corporation A undertook to pay to A all the related rental income. How might ss. 9(1), 15(1), 56(2), 56(4) and 18(1)(a) apply – and would this change if there were instead an agreement for royalties on a land sale? Before turning to the application of s. 56(2) (or, in some circumstances, s. 56(2)) to A, CRA stated:
[T]he rent collections by Corporation A…would probably not have the "quality of income” to Corporation A since it would not be Corporation A which had an absolute and unconditional right to these amounts, as it was obligated to pay them over to A … [and] would not be included in Corporation A's income under subsection 9(1). Similarly, the payment of the amount to A would not be an expense incurred to earn income.