A sale of holding company shares is off-side CRA’s policy on earn-outs.

In IT-426R, CRA refers to earn-out clauses in share sale agreements where "the quantum of proceeds is determined by reference to future earnings generated by the underlying assets of the corporation," and it lists as one of the conditions, for the vendor being permitted to use the cost recovery method, that it is reasonable to assume that the earnout feature relates to "underlying goodwill."

CRA has indicated that the cost recovery method is not available where an individual sells, on an earnout basis, the shares of a holding company (Aco) whose only asset is shares of an Opco (Bco), because "the earnout clause is not tied to future amounts generated by underlying properties utilized in the course of a business carried on by Aco but rather to properties held by Bco."

Although ridiculous, this position may not be so bad.  Stating that there is no relevant "underlying" property effectively is an acknowledgement that s. 12(1)(g) does not apply, and the future contingent amounts might be substantially discounted.

Neal Armstrong.  Summary of 14 May 2013 T.I. 2013-0480561E5 F under s. 12(1)(g).