CRA indicates that earnout payments under cost recovery method generally are not subject to Pt XIII tax

At the 2005 APFF Roundtable, CRA indicated that an amount payable under an earnout feature in a sales agreement is subject to s. 212(1)(d)(v), but indicated that, in a situation where the shares are taxable Canadian property, it would not generally apply s. 212(1)(d)(v) to the TCP, assuming that the first four conditions in IT-426R, para. 2 (re use of the cost recovery method) were met.

CRA has now reaffirmed this position and indicated that it also applies where the shares that were sold were not TCP.

Neal Armstrong. Summary of 3 December 2019 CTF Roundtable, Q.10 under s. 212(1)(d)(v).