Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Whether non-competition payments received are taxable.
Position: General comments.
Reasons: Proposed amendment 56.4.
September 2, 2005
XXXXXXXXXX
Dear XXXXXXXXXX:
The Honourable John McCallum, Minister of National Revenue, has asked me to reply to your letter of June 13, 2005, regarding the tax status of non-competition payments.
The confidentiality provisions of the Income Tax Act preclude me from divulging taxpayer information to another party without written permission from the taxpayer. Accordingly, I am unable to provide you with details of any non-competition fees that may be involved in the sale of the XXXXXXXXXX. I can, however, provide you with some general comments on the tax status of non-competition payments.
In two Federal Court of Appeal decisions, The Queen v Fortino et al dated December 14, 1999, and Manrell v The Queen dated March 11, 2003, it was held that amounts receivable by a vendor on the sale of shares of a corporation, for an agreement not to compete with the business carried on by the corporation, were generally not taxable. Accordingly, on October 7, 2003, the Honourable John Manley, then Deputy Prime Minister and Minister of Finance, announced his intention to propose amendments to the Act affecting the income tax treatment of amounts received or receivable by a taxpayer for granting a restrictive covenant.
The proposed amendments would alter the court result and would generally treat any amount receivable in respect of a restrictive covenant as ordinary income for income tax purposes. The amendments would apply to amounts received or receivable after October 7, 2003, with the exception of amounts received before 2005 pursuant to a written agreement made on or before October 7, 2003, between parties dealing at arm's length.
I trust that the information I have provided will be of assistance.
Yours sincerely,
Brian McCauley
Assistant Commissioner
Policy and Planning Branch
c.c.: Minister's Office
Political Assistant
2005-013976
Charles Rafuse
613-957-8967
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