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: clarification of comments in CRA document
Position: break fee may also be included in income under subsection 9(1) or paragraph 12(1)(x)
Reasons: see document 2010-0366321I7
XXXXXXXXXX 2012-046796
November 2, 2012
Dear XXXXXXXXXX:
Re: Corporate Finance
We are writing further to our telephone conversation of October 18, 2012 and to clarify the comments attributed to the Canada Revenue Agency (CRA) in the article titled Break-fee Receipts: Expanding the Concept of Income which was recently published in Corporate Finance Volume XVIII, No. 1 (Federated Press, 2012).
As discussed, this article incorrectly indicates on page 2069 that the Canada Revenue Agency stated in a technical interpretation that the most reasonable characterization of a break fee is as proceeds of disposition of the taxpayer's rights under a support agreement. Although these comments were attributed to the CRA, they were actually cited from the article "Tax Treatment of Transaction Costs" by Nik Diksic and Christian Desjardins published in Report of Proceedings of Fifty-Eighth Tax Conference, 2006 Tax Conference (Toronto: Canadian Tax Foundation, 2007), 38:1-37, at page 37.
Although our interpretation (2010-0366321I7) indicated that one possible treatment for a break fee received by a taxpayer may be as proceeds of disposition of the taxpayer's rights under a support agreement, the technical interpretation also stated that a break fee received may represent income to the recipient under either subsection 9(1) or paragraph 12(1)(x) of the Income Tax Act.
Yours truly,
Fiona Harrison, CA
Manager
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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