4 January 2006 Internal T.I. 2005-0115801I7 F - Convention de retraite -- summary under Subsection 56(2)

A closely-held corporation that was dividending out all the profits of its business also established a purported retirement compensation arrangement (RCA) trust for two employees who, indirectly, were the corporation’s two shareholders, and made contributions to the trust that were funded by loans from the trust. After finding that the arrangement did not qualify as an RCA because the benefits were not reasonable, the Directorate went on to find that s. 56(2) should be applied to include the amounts of the contributions to the trust in the income of the shareholders, as a benefit they had concurred in being conferred on the purported RCA trust and that would have been taxable to them under s. 15(1) if paid to them directly.