Strategies for Executive Compensation: Design and Tax Issues for a ...

Non-Portfolio Company
Incentives (cont’d)
• If LLC is a corporation for Canadian tax
purposes, profits interest may be a share
for purposes of section 7 of ITA
• Regardless of whether section 7 applies, if
profits interest granted to employee, it
appears that fair market value at grant
would be taxable benefit of employment
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Non-Portfolio Company
Incentives (cont’d)
• Profits interests generally have no intrinsic
value at grant since if LLC liquidated at
that time holders of profits interest would
receive nothing
• In U.S., current tax rules allow profits
interests to be granted at zero value (i.e.,
no income inclusion on grant) and any
increase to be taxed as a capital gain
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Non-Portfolio Company
Incentives (cont’d)
• Would expect profits interests to have
some positive fair market value for ITA
purposes, but can be difficult to establish
• Appears to be no published CRA
commentary on taxation of profits interests
granted to employees as a form of
incentive compensation
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