No. 115 v. MNR, 53 DTC 338 (ITAB)

Payments received by the taxpayer which were stipulated to be consideration for his agreement not to engage in the lobster business within two specified counties were found not to be employment income to him pursuant to what now is s. 6(3)(e) because of the words in that provision referring to "irrespective ... [of] the form or legal effect" of the agreement, and on the basis of evidence that the company and the taxpayer were not engaged or even interested in the lobster business and that the covenant was only given in order to make the obligation to make the payments legally enforceable.

On the sale of shares of a company of which the taxpayer was the controlling shareholder ("Company A") for $540,000, Company A agreed to pay the taxpayer $250,000 per month for 20 years in consideration for his agreement not to engage in the lobster business in two particular counties during the 20-year period. Almost ten years later, a new company ("Company B", of which the taxpayer eventually became the president) was formed, purchased the assets of Company A and assumed the obligation to continue paying $250 per month to the taxpayer in consideration for his covenant to continue observing the non-compete covenant.

Mr. Monet found that neither Company B nor the taxpayer were engaged or even interested in the lobster business, that the covenant was inserted only to make the obligation to make the monthly payments legally enforceable, and that the payments received by the taxpayer from Company B were not paid to him in consideration or partial consideration for the non-compete covenant. He further observed but for the words "irrespective of ... the form or legal effect thereof", the taxpayer would not have had any case at all.