Cases
Canada v. Larsen, 99 DTC 5757 (FCA)
The taxpayer and his three siblings gave a lumber company the right to enter their land to remove timber during a five-month period for...
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| Tax Topics - Income Tax Regulations - Regulation 1106 - Subsection 1106(1) | 95 |
The Queen v. Mel-Bar Ranches, 89 DTC 5189, [1989] 1 CTC 360 (FCTD)
A timber-sale agreement between the taxpayer (a farmer) and the purchaser provided for the purchase of 25,500 tonnes "more or less" of fir at a...
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| Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Commodities, and commodities futures and derivatives | 50 |
Consumers' Gas Company Ltd. v. The Queen, 82 DTC 6300, [1982] CTC 339 (FCTD), aff'd, 84 DTC 6058, [1984] CTC 83 (FCA)
Where the taxpayer was compensated for changing the location of its pipelines it was found that the amounts received were not "dependent upon the...
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| Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Disposition of Property | no disposition of abandoned gas mains | 38 |
| Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Undepreciated Capital Cost - A | cost not reduced by reimbursement right therefor | 134 |
| Tax Topics - Income Tax Act - Section 13 - Subsection 13(7.1) | 37 | |
| Tax Topics - Income Tax Act - Section 9 - Compensation Payments | compensation for relocating pipelines was capital | 32 |
Porta-Test Systems Ltd. v. The Queen, 80 DTC 6046, [1980] CTC 71 (FCTD)
A royalty to be received by the taxpayer was calculated as the greater of 5% of the licensee's net sales for the following three years and...
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| Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Patents and Know-How | 154 |
Lackie v. The Queen, 79 DTC 5309, [1979] CTC 389 (FCA)
Payments received by the owner of a gravel pit, equal to $.20 per ton of gravel removed by the licensee, were amounts that were dependent on the...
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| Tax Topics - Income Tax Act - Section 74.1 - Subsection 74.1(1) | 60 |
MNR v. Gault, 65 DTC 5157, [1965] CTC 261 (Ex Ct)
An arrangement under which a taxpayer, which had purchased the goodwill of an insurance business of the vendor thereof, including client lists,...
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| Tax Topics - Income Tax Act - Section 9 - Nature of Income | 101 |
Gingras v. MNR, 63 DTC 1142, [1963] CTC 194 (Ex Ct)
S.6(1)(j) of the pre-1972 Act was found to be applicable to the sale by the taxpayer to a corporation controlled by him of copyright for a fixed...
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| Tax Topics - Statutory Interpretation - Reciprocity | 106 |
Minister of National Revenue v. Wain-Town, 52 DTC 1138, [1952] CTC 147, [1952] 2 S.C.R. 377
The taxpayer, which assigned its franchise to supply municipalities with natural gas to another company in consideration for amounts (described in...
See Also
4432002 Canada Inc. v. The Queen, 2022 CCI 101
The taxpayer, which was owned by an employee (“Huet”) of another company (“Pysis”) and by Huet’s spouse, in May 2009 sold together with...
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| Tax Topics - Income Tax Act - Section 184 - Subsection 184(3) | s. 184(3) election conditional on settlement of the CDA dispute, was valid | 129 |
Deragon v. The Queen, 2015 TCC 294
Vendors agreed to sell shares for a sale price of $16 million, of which $2 million was payable in subsequent years only if an EBITDA condition...
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| Tax Topics - Income Tax Act - Section 54 - Proceeds of Disposition - Paragraph (a) | sales proceeds reduced by subsequent price adjustment clause but included conditional sales proceeds | 480 |
| Tax Topics - General Concepts - Effective Date | proceeds reduced by subsequent settlement pursuant to price adjustment clause | 205 |
Smith v. The Queen, 2011 DTC 1332 [at 1870], 2011 TCC 461
The taxpayer sold the client list respecting his insurance brokerage business for a stipulated dollar sale price (payable in five annual...
Wright v. The Queen, 2003 DTC 763 (TCC)
The taxpayers and their father had used 430 acres of a 5,700 acre property in Manitoba for farming for many years before farming ceased in the...
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| Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Business | 122 | |
| Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Commodities, and commodities futures and derivatives | sale of timber from former farm on capital account | 122 |
Rouleau v. MNR, 91 DTC 120 (TCC)
On the sale of the taxpayer's chartered accountancy practice, it was agreed that the sale price for the goodwill would be 20% of gross fees earned...
289018 Ontario Ltd. v. MNR, 87 DTC 38, [1987] 1 CTC 2095 (TCC)
The proceeds from the sale by the taxpayer of a technological equipment business consisted of a fixed cash payment and further cash payments...
Brosseau v. MNR, 86 DTC 1412, [1986] 1 CTC 2558 (TCC)
The taxpayer sold his accounting practice for a price equal to 20% of gross revenue received from his former clientele over the following five...
Pacific Pine Co., Ltd. v. MNR, 61 DTC 95 (TAB)
S.6(1)(j) of the pre-1972 Act did not apply where the taxpayer sold a timber licence for a purchase price payable in 16 quarterly instalments...
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| Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Leases and Licences | 104 |
Mr. R. v. MNR, 50 DTC 398 (ITAB)
An agreement for the assignment by the taxpayer to a drug company of the taxpayer's rights under patent to a medicinal preparation in...
Administrative Policy
1 February 2024 External T.I. 2023-0994141E5 - Cost Recovery Method in IT-426R (Archived)
After referring to its conclusion in 2021-0884651E5 that the cost recovery method (as described in IT-426R) cannot be applied, where a Canadian...
29 November 2022 CTF Roundtable Q. 11, 2022-0949761C6 - Earnout Agreement
Earnout based on subsidiary goodwill
One of the conditions provided in IT-426R for application of the cost recovery method (in subpara. 2(c)) is...
17 May 2022 External T.I. 2021-0884651E5 - Cost Recovery Method in IT-426R (Archived)
The vendor of a minority (capital property) shareholding (under 5%) of a U.S. company (TargetCo) is a limited partnership (“Partnership”) with...
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| Tax Topics - Income Tax Regulations - Regulation 229 - Subsection 229(1) | T5013 return is not a return of income | 128 |
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Canadian Resident Partnership | “Canadian resident partnership” is not a person “resident in Canada” | 143 |
| Tax Topics - Income Tax Act - Section 96 - Subsection 96(1) - Paragraph 96(1)(a) | “Canadian resident partnership” is not a person “resident in Canada” (although it is resident for income computation purposes) | 160 |
7 October 2021 APFF Roundtable Q. 8, 2021-0900981C6 F - Cost Recovery Method in IT-426R (Archived)
Where a limited partnership with resident and non-resident partners sells shares subject to an earnout, it is difficult to comply with paras. 2(e)...
3 December 2019 CTF Roundtable Q. 12, 2019-0824531C6 - Earnout and Cost Recovery Method
The proceeds of disposition of the shares of Company A are determined pursuant to an earnout clause, which is based on the future earnings...
2015 Ruling 2015-0589471R3 - Earnout
Background
The corporate Shareholders (with equal shareholdings) of Holdco (a Canadian-controlled private corporation) wish to sell X% of their...
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| Tax Topics - Income Tax Act - Section 55 - Subsection 55(1) - Safe-Income Determination Time | safe income determination time for a subsequent contemplated dividend was immediately before that dividend | 534 |
| Tax Topics - Income Tax Act - Section 85 - Subsection 85(1) | s. 85(1) rollover available on dirty s. 85 exchange | 92 |
| Tax Topics - Income Tax Act - Section 55 - Subsection 55(2.1) - Paragraph 55(2.1)(c) | utilization of safe income as earned through a contemplated succession of dividends of all the annual earnings | 178 |
| Tax Topics - Income Tax Act - Section 7 - Subsection 7(1) - Paragraph 7(1)(a) | transactions for using s. 7 rules on sale of non-treasury shares | 212 |
10 March 2015 External T.I. 2014-0552551E5 F - Vente du droit d'exploiter une sablière
A partnership which owns a "qualified farm or fishing property" sells the right to operate the sand pit to a municipality for a fixed sum. Does a...
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| Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Real Estate | application of capital gains criteria on woodlots to sale of rights to extract sand | 51 |
| Tax Topics - Income Tax Act - 101-110 - Section 110.6 - Subsection 110.6(1) - Qualified Farm or Fishing Property | sale of rights to extract sand could be considered sale of qualified farm or fishing property | 180 |
12 January 2015 External T.I. 2014-0555071E5 - POD subject to earn-out
In an arm's length sale, the corporate "Vendor" disposes of the "Property" (including land options agreements, permits, engineering data and...
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| Tax Topics - Income Tax Act - Section 14 - Subsection 14(5) - Cumulative Eligible Capital | proceeds of goodwill on sale of wind turbine development project | 231 |
| Tax Topics - Income Tax Act - Section 66.1 - Subsection 66.1(6) - Cumulative Canadian exploration expense - Element G | proceeds of wind turbine development project | 147 |
| Tax Topics - Income Tax Regulations - Regulation 1219 - Subsection 1219(1) | wind turbine development project | 108 |
27 August 2014 External T.I. 2014-0529221E5 F - Changement de méthode pour déclarer un gain
Could a taxpayer, who did not use the cost recovery method to report the capital gain on the disposition of shares subject to an earnout agreement...
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| Tax Topics - Income Tax Act - Section 220 - Subsection 220(3.2) | administrative policy on earnout calculation was not an election | 128 |
24 February 2014 External T.I. 2013-0505391E5 F - Clause de earnout renversé
CRA confirmed its position in 2000-0051115 that:
Where the cost recovery method is not used and the sale price of a property is not certain at the...
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| Tax Topics - Income Tax Act - Section 40 - Subsection 40(1) - Paragraph 40(1)(a) - Subparagraph 40(1)(a)(iii) | a sale price that is subject to a reverse earnout is not considered to be payable after the year (no reserve) | 195 |
14 May 2013 External T.I. 2013-0480561E5 F - Méthode de recouvrement du coût
Mr. A holds all the shares of a Canadian-controlled private corporation (Aco), which has a calendar fiscal period and whose only asset is shares...
20 December 2011 External T.I. 2011-0423771E5 - Payments Based on Production or Use
The position in IT-462, para. 5(c) (respecting the sale of property for a fixed sum plus additional amounts based on production exceeding a...
23 March 2011 Internal T.I. 2010-0389081I7 F - Disposition of a resource property
The Vendor sold a percentage interest in mineral claims for consideration including shares to be issued by the public-company purchaser, to be...
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| Tax Topics - Income Tax Act - Section 66.2 - Subsection 66.2(5) - cumulative Canadian development expense - Element F | proceeds from mineral claims sale included undiscounted deferred cash proceeds, but might exclude share consideration until issued; purchaser’s CEE obligation excluded | 390 |
| Tax Topics - Income Tax Act - Section 54 - Proceeds of Disposition - Paragraph (a) | proceeds included full (undiscounted) deferred cash proceeds, but might exclude share consideration (with volatile market price) until issued | 175 |
| Tax Topics - Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(b) | full undiscounted amount of future cash consideration to be included as an amount receivable | 209 |
9 July 2003 External T.I. 2003-0183675 F - VENTE D'UNE LISTE DE CLIENTS
Three alternative scenarios apply to the sale of the client list of a retiring professional:
1. The sale price will be 25% of the fees earned over...
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| Tax Topics - Income Tax Act - Section 24 - Subsection 24(1) | loss under s. 24(1)(a) where maximum sales price (equaling FMV) for sold client list is not achieved | 194 |
11 May 2001 Internal T.I. 2001-0072367 - Accrued Royalty Income
Respecting a submission that accrued royalties were not required to be included in the taxpayer's income because they were not received in the...
20 December 2002 External T.I. 2002-0164735 F - PRODUIT DE DISPOSITION ACHALANDAGE
On a sale of the business of a pharmacist, the consideration for the goodwill sold is equal to the number of prescriptions sold over a 12-month...
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| Tax Topics - Income Tax Act - Section 14 - Subsection 14(5) - Cumulative Eligible Capital - Variable E | full potentially receivable amount must be recognized, notwithstanding subsequent possible downward adjustment | 266 |
21 January 2002 External T.I. 2001-0078735 F - Droit de recevoir une somme
The shareholders of a CCPC (Xco) agreed to sell their Xco shares to a public corporation (Yco) in consideration for an upfront cash payment, and...
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| Tax Topics - Income Tax Act - Section 54 - Proceeds of Disposition | FMV of contingent right to deferred cash sales proceeds was included in proceeds, with subsequent gain or loss when the contingency was resolved | 224 |
| Tax Topics - Income Tax Act - Section 85 - Subsection 85(1) - Paragraph 85(1)(f) | s. 85(1)(f) applicable to contingent right to receive deferred cash sales proceeds to the extent the share consideration received under s. 85(1) declined in value | 138 |
24 September 1997 External T.I. 9718365 - PROCEEDS BASED ON PRODUCTION OR USE
S.12(1)(g) can apply to the disposition of a partnership interest.
20 January 1994 Internal T.I. 9329727 F - Woodlots Which Are Not Incidental to Farming Operations
Re application of s. 12(1)(g) to woodlot operation.
30 December 1992 T.I. (Tax Window No. 27, p. 5, ¶2321)
S.12(1)(g) does not apply where the consideration received for the sale of software includes a note the timing of payment of which depends on the...
2 September 1992 Memorandum (Tax Window, No. 24, p. 17, ¶2222)
The sale of cutting rights for a fixed price for a fixed quantity of timber to be taken within a fixed period of time will not be subject to s....
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| Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Commodities, and commodities futures and derivatives | 53 |
IT-462 "Payments Based on Production or Use" 1 January 1995 (Archived)
5. When paragraph 12(1)(g) requires proceeds of dispositions of property to be included wholly or partly as income, subject to 3 above, the...
IT-426R "Shares Sold Subject to an Earnout Agreement" 26 Ocober 2004 (Archived)
Conditions for use of cost recovery method
2. Taxpayers may use the cost recovery method if the following conditions are met:
(a) The vendor and...
Articles
Kim Maguire, Jeffrey Shafer, "Trends in Buy/Sell Transactions", draft 2021 Conference Report
Whether s. 12(1)(g) can apply to a share sale (p. 3)
- Since most contingent consideration for a share sale will relate to earnings or other...
Warren Pashkowich, Daniel Bellefontaine, "Participation-Based Payments: What Are They and How are They Taxed", 2017 Conference Report (Canadian Tax Foundation), 9:1-25
Whether the referenced property is restricted to property that was sold (pp. 9:9-10)
[T]he the inclusion of the definite article “the”...
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| Tax Topics - Income Tax Act - Section 88 - Subsection 88(1) - Paragraph 88(1)(c.3) - Subparagraph 88(1)(c.3)(i) | 267 |