The treatment of share-sale earnout payments that do not come within IT-426R is uncertain

Having regard to the reference to “the” property in s. 12(1)(g) and the background to its introduction, it is quite arguable that the property referenced in s. 12(1)(g) is only the property that was sold, so that sales proceeds of sold shares or partnership interests that are based only on parameters for use of the underlying property of the sold corporation or partnership do not come within the scope of application of s. 12(1)(g) (thereby suggesting that it might be unnecessary to fit within the safe harbour for earnouts in IT-426R). However, s. 12(l)(g) notably is not stated to be limited to circumstances in which property is sold, notwithstanding the fact that the original impetus for the provision came from a case involving the retention of a royalty in connection with a sale of property.

Neal Armstrong. Summaries of Warren Pashkowich and Daniel Bellefontaine, “Participation-Based Payments: What Are They and How are They Taxed,” 2017 Conference Report (Canadian Tax Foundation), 9:1-25 under s. 12(1)(g) and s. 88(1)(c.3)(i).