Ritchie – Tax Court of Canada finds that an early signing bonus was part of the proceeds of disposition of the subject property

A farmer, who rented his farm to his corporation, received an early “signing bonus” of $255,790 from Enbridge for entering into an agreement with Enbridge by the stipulated deadline under which he granted an easement for a pipeline to Enbridge. The Agreement stipulated that the $255,790 was “an incentive for early signing of the easement agreement” rather than part of the (separately stipulated) compensation for the easement.

Notwithstanding this clause, D’Arcy J found that in substance, the “signing bonus” was part of the taxpayer’s proceeds of disposition for disposing on an interest in land (the granting of the easement) and, thus, gave rise to a capital gain.

This case is helpful to the view that inducements paid to security holders for their agreement to exchange or tender their securities early are part of their proceeds rather than fee or inducement income.

Neal Armstrong. Summary of Ritchie v. The Queen, 2018 TCC 113 under s. 12(1)(x)(viii).