Table of Contents

See Also

Bergeron v. The Queen, 2013 DTC 1081 [at 450], 2013 TCC 13

The taxpayer managed a the immigrant investor program at an investment dealer ("Cannacord") and was entitled to receive certain amounts from his employer upon the maturity of the underlying investments. The program was transferred to another firm, for whom the taxpayer continued to manage the program on a contractual basis. Under the transfer agreement, the taxpayer was entitled to "deferred closing fess" in respect of the above deferred amounts.

Boyle J affirmed the Minister's position that the deferred closing fees, when later received, were paid pursuant to a contract for services, and thus gave rise to income rather than capital gains. Section 42 stipulates a disposition of capital property, and therefore did not apply.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 42 did not apply to fees 117

Aallcann Wood Suppliers Inc. v. The Queen, 94 DTC 1475 (TCC)

After a decision to go out of the pulpwood business and into the business of manufacturing fence posts, the taxpayer assigned its contract to supply pulpwood to another company ("Weyerhaeuser") to two companies for valuable consideration. In finding that the receipt was a capital receipt notwithstanding the relatively short remaining term of the contract, Bowman TCJ. stated (p. 1477):

"What was sold was, of course, the contract but it carried with it the benefit, as a matter of reasonable commercial expectation, of being able to stand in the appellant's shoes year after year and obtain a succession of such contracts from Weyerhaeuser. The argument advanced by the respondent is precisely that rejected by Catanach, J. in Metropolitan Taxi Ltd. v. MNR, 67 DTC 5073 ..."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(1.1) 54

Administrative Policy

30 March 1994 Internal T.I. 9407577 - PLAYER CONTRACTS - PROCEEDS OF DISPOSITION

Proceeds received for player contracts on the sale of a sports team will give rise to a capital gain.

7 February 1992 TI (Tax Window, No. 16, p. 19, ¶1739)

Proceeds from the sale of player contracts when disposed of as part of the sale of a business would normally be on account of capital.


Ian Gamble, "Income from a Business or Property: General Principles and Current Issues", 2014 Conference Report, Canadian Tax Foundation, 5:1-32

Break fees referable to pre-acquisition agreement (pp.5:23-24)

Break fees arise in the public corporation marketplace. They are routinely negotiated as part of a pre-acquisition (or support) agreement,…

The contractual rights secured by a bidder under a pre-acquisition agreement are not simply "general and non-exclusive rights." They represent exclusive proprietary rights as against the target corporation, and, as such, constitute property. Furthermore,-termination of these rights should constitute a disposition of property. [fn 110: … Bache, 2011 FCA 104, at… 22 and 41.]…

Break fees as capital receipts (p. 5:25)

[E]arlier decisions made in the context of option agreements are helpful and persuasive. The courts have looked to the nature of the property underlying the contract to determine whether the option itself was capital property. In other words, the question whether amounts realized on the disposition of the option contract were of a capital nature turned on whether the property underlying the option would have been capital property in the option holder's hands if the option had instead been exercised (and the underlying property acquired). [fn 113: Hill-Clark-Francis Ltd. v. MNR, [1961] Ex. CR 110; David Miller v. MNR, 62 DTC 1303 (Ex. Ct); MNR v. Aldershot Shopping Plaza Ltd., 65 DTC 5018 (Ex. Ct.); Morris Schnek…, 1984 Conference Report (…Canadian Tax Foundation…at 710-11… .]

…[T]he rights secured under a pre-acquisition agreement are analogous to rights secured under an option agreement….Accordingly, if the shares would be capital property in the hands of the bidder (if successfully acquired), the rights under the pre-acquisition agreement should likewise be capital property.

[F]rom there, it seems a short step to conclude that the amount received on the disposition (the break fee) is a capital receipt.

Break fees as proceeds of capital property or eligible capital amounts (p. 5:26)

If the transaction occurred before the 2006 amendments were made to the mirror-image rule in section 14, the amount is likely to be a capital gain….

lf the break fee were received after the 2006 amendments to the mirror-image rule, the result is surprisingly unclear. Following these amendments, the text of the rules in sections 14 and 39 can be seen to result in perfect circularity….