(e)-(x)

Discussion whether an increase in the sale price of shares between the date of an agreement of sale and the closing date represents interest or an adjustment to the proceeds of disposition.

A governmental authority will acquire a number of residential, commercial, forestry, agricultural and undeveloped properties for a construction project pursuant to privately-negotiated terms including a sales price and further sums agreed to be paid to the owners to compensate them for various losses suffered. In the course of a general discussion, CRA indicated that although compensation for damage to property that, within a reasonable time after the damage occurred, has been expended to repair the damage is excluded from “proceeds of disposition” pursuant to para. (f) of the definitions in ss. 54 and 13(21), such compensation could be included in income pursuant to s. 12(1)(f), and expenses made or incurred to repair damage to depreciable property (e.g., to fences) would be deducted in computing income.

A portion of a building was destroyed by fire, with a portion of the insurance proceeds used to reconstruct it. CRA stated (TaxInterpretations translation):

[T]he compensation payable to the corporation under the insurance policy appear to come within paragraph (f) of the definition of "proceeds of disposition" in section 54… .

[I]t is thus necessary to determine if the damages received were, within a reasonable period, expended for repairing damages caused to the property. If that is the case, paragraph 12(1)(f) provides that the compensation received will be included in the computation of the income of the taxpayer… .

See summary under s. 44(1).

After referring to its conclusion in 2021-0884651E5 that the cost recovery method (as described in IT-426R) cannot be applied, where a Canadian resident taxpayer is a member of a partnership that sells shares of a corporation, CRA stated:

Following your representations, the CRA is prepared to re-examine whether the cost recovery method should apply to Canadian resident taxpayers that are members of partnerships that sell shares subject to an earnout agreement. …

In its review, the Income Tax Rulings Directorate will have to consult internal stakeholders and the whole process may take some time. Therefore, any change of position would likely be disclosed at a future CRA Round Table, rather than in the context of a technical interpretation.

Earnout based on subsidiary goodwill

One of the conditions provided in IT-426R for application of the cost recovery method (in subpara. 2(c)) is that it must be reasonable to assume that the earnout feature relates to underlying goodwill, the value of which cannot reasonably be expected to be agreed upon by the vendor and the purchaser at the time of the sale.

The quantum of the proceeds of disposition of the shares of a corporation (Holdco) under an earnout clause is determined by reference to the future earnings generated by one out of three of its subsidiaries (ACo), so that the earnout feature relates only to the goodwill of ACo. CRA indicated that this earnout feature meets the condition of subpara. 2(c), indicating that the same reasoning applied as in 2019-0824531C6.

Timing of satisfaction of 5-year condition in subpara. 2(d)

Suppose a vendor owns shares of a target corporation whose year-end is September 30, 2022. The shares of the target corporation were sold on October 1, 2022. The purchaser of the shares of the target corporation chooses a December 31 year-end for the target corporation. Under the terms of the purchase and sale agreement for the shares of the target corporation, the earnout amount will be determinable no later than September 30, 2027. For the conditions of subparagraph 2(d) to have been met, when must the earnout amount be paid?

CRA noted that since (per para. 2(a) of the Bulletin) the vendor and purchaser referred to in para. 2(d) were dealing at arm’s length, one would expect s. 249(4) to deem the target to have a year-end immediately before the acquisition of control. In the example, the shares of the target thus would be acquired in the short taxation year of the target ending on December 31, 2022 so that, under the 5-year rule in para. 2(d), the earnout feature would be required to end no later than December 31, 2027.

Regarding the requirement that the last contingent amount “may [only] become payable” pursuant to the sale agreement within the 5-year period, CRA noted that under the cost-recovery method set out in para. 3, the vendor will reduce the ACB of the shares sold as amounts on account of the sale price becoming determinable, and that para. 5 of the Bulletin indicates that an amount becomes determinable when it is capable of being calculated with certainty, and the taxpayer has an absolute (but not necessarily immediate) obligation to pay. CRA considered that para. 2(d) of the Bulletin required that there be a clear legal, but not necessarily immediate, obligation to pay the last contingent amount, no later than December 31, 2027, in order for the cost recovery method to apply.

Finally, CRA indicated that there is no requirement under subpara. 2(d) that the contingent amount in fact be paid within such 5-year period .

The vendor of a minority (capital property) shareholding (under 5%) of a U.S. company (TargetCo) is a limited partnership (“Partnership”) with its central management and control in Canada (so that it is a “Canadian resident partnership” as defined in s. 248(1)) with both resident and non-resident partners sells such shares to an arm’s-length purchaser (BuyerCo) for proceeds received on closing exceeding the shares’ adjusted cost base – and, in addition, may receive additional payments in future years pursuant to an earnout (which is not a reverse earnout).

Having regard to whether the cost recovery method described in IT-426R, para. 2 is available:

1. Does a “Canadian resident partnership” satisfy subpara. 2(f)?

2. Does the passive involvement of Partnership in the negotiation of the sale satisfy the subpara. 2(c) condition that the vendor and the purchaser cannot agree on the value of the underlying goodwill?

3. Does the T5013 information return prepared by Partnership meet the subpara. 2(e) condition?

4. If Partnership instead is ineligible under para. 2, can the eligible partners access that rule?

The conditions for the application of the cost recovery method described in paragraph 2 of Interpretation Bulletin IT-426R (Archived) were not designed to apply to limited partnerships in situations such as described above.

CRA indicated:

The definition of “Canadian resident partnership” … is not relevant for the application of [subpara. 2(f)] … . Moreover, a limited partnership is not a person resident in Canada for the purposes of the Act (although it is deemed to be a separate person resident in Canada for limited purposes in subsection 96(1)).

The CRA will in general consider that [subpara. 2(c)] … is satisfied even if a particular vendor is not directly involved in the negotiations for the sale of shares, when [the other conditions are satisfied]. …

… T5013 forms … do … not constitute a return of income for the purpose of [subpara. 2(e)] … .

[T]he conditions for the application of the cost recovery method described in paragraph 2 … were not designed to apply to limited partnerships. Therefore, neither a partnership nor the partners of a partnership in situations such as described above may use the cost recovery method … .

Where a limited partnership with resident and non-resident partners sells shares subject to an earnout, it is difficult to comply with paras. 2(e) and (f) of IT-426R respecting use of the cost-recovery method given that the limited partners generally will not have access to the sale contract and they do not have an obligation to themselves declare the capital gain on their own returns in a capacity of vendor. If the conditions in paras. 2(a) to (d) of the Bulletin are satisfied, can a limited partnership utilize the cost recovery method in these circumstances? CRA responded:

The conditions of application provided in paragraph 2 of IT-426R were not designed for limited partners of a limited partnership in a situation as described above.

Consequently, the cost recovery method could not be used by a limited partnership in such a situation.

The proceeds of disposition of the shares of Company A are determined pursuant to an earnout clause, which is based on the future earnings generated by Company B (whose shares are held by Company A), so that the earnout feature relates only to the underlying goodwill of Company B. Is the cost recovery method available?

CRA indicated that the mere fact that the earnout feature relates to the underlying goodwill of Company B will not preclude the application of the cost recovery method. This position reverses 2013-0480561E5 and instead follows the approach in 2015-0589471R3.

The interpretive issue stems from IT-426R, para. 1, which refers to the “underlying assets of the corporation,” and this position is applying that approach.

Background

The corporate Shareholders (with equal shareholdings) of Holdco (a Canadian-controlled private corporation) wish to sell X% of their shares to an arm’s length officer (the “Key Employee”) of (wholly-owned) Opco on an earnout basis. As Holdco is not permitted under the BCA to issue treasury shares until the consideration for the shares is fully paid (so that Holdco may not issue treasury shares to the Key Employee on an earnout basis), the Shareholders will instead sell a portion of their Holdco shares to Opco, who will then sell those shares to the Key Employee on an earnout basis. Under the BCA, Opco may hold Holdco shares for a maximum of 30 days, notwithstanding that Opco is a subsidiary of Holdco.

Proposed transactions

1. The Holdco Shareholders will transfer a portion of their common shares to Opco (jointly electing in due course under s. 85(1)) at an agreed amount equal to their ACB) in exchange for a corresponding number of non-voting preferred shares which will have a right to cumulative dividends (in an aggregate amount equal to the Purchase Price described below - less any applicable taxes payable thereon by Opco) which are payable from time to time as soon as practicable after any portion of the Purchase Price is received by Opco and such taxes are determined, and which will not be redeemable or retractable until such dividends have been paid.
2. The parties have structured an earnout because they will be unable to determine the value of the goodwill of Holdco and the subsidiaries at the date of the sale to the Key Employee. Accordingly, within 30 days, Opco will sell (pursuant to the “Purchase Agreement”) those Holdco Common shares to the Key Employee in exchange for cash consideration (the “Purchase Price”) payable in five tranches as follows:
   
   1. X% of consolidated net after-tax income of Holdco and the Subsidiaries under IFRS, subject to adjustments for dilutive etc. events and for the add-back of taxes arising on the sale under the Purchase Agreement (“Consolidated Income”) for the first taxation year ending after the Holdco Common shares are sold (but excluding the portion thereof earned before the disposition of such shares), plus X% of the shareholder equity as of the time of sale and X% of any dividends receivable at that time, payable as soon as practicable after such amounts are determined; and
   2. specified percentages of the Consolidated Income for the second, third, fourth and fifth taxation year ending after the Holdco Common shares are sold, payable as soon as practicable after it is determined for each such year and, in any event, no later than five years after the end of such taxation year of the sale.
3. The Purchase Agreements provides for adjustments to the Purchase price in the event of an acquisition or IPO.
4. As soon as practicable after any portion of the Purchase Price is determined (e.g., when Consolidated Income for a taxation year is determined), the Key Employee will pay the required portion of the Purchase Price to Opco, whereupon Opco will pay the required Earnout Tracking Dividends.
5. A copy of the Purchase Agreement will be sent to the CRA for the taxation year in which the shares were disposed of, along with an undertaking to follow the cost recovery method as described in IT-426R.

Purposes

Since each of the Shareholders may deal at arm’s length with Holdco, the FMV of the Holdco Common shares is difficult to determine, and the Key Employee is an employee of Opco, a sale of Holdco Common shares by the Shareholders to the Key Employee may not be described in s. 7. It is intended that the provisions of s. 7 apply to the proposed transactions.

The purpose of the Dividend Policy is to ensure that the equity invested in Holdco and the subsidiaries (accumulated earnings on hand) is minimized at all times. The proceeds of the dividends may be loaned back to the payor (to the extent the payor requires funds) and, in that event, are intended to be secured by the creditor.

Rulings

1. S. 12(1)(g) will not apply to the disposition of Holdco Common shares by Opco to the Key Employee in 2.
2. Opco will be required to reduce the adjusted cost base to it of the Holdco Common shares disposed of in 2 as amounts on account of the Purchase Price become determinable. Once the cumulative such an amount exceeds Opco’s ACB of the Holdco Common shares, under s. 40(1) the excess will be considered a capital gain. For these purposes, an amount becomes determinable once it is capable of being calculated with certainty.
3. S. 55(2) will apply to an Earnout Tracking Dividend, with their safe income determination time being the time that is immediately before the time the first of the Interim Income Dividends is paid.

A partnership which owns a "qualified farm or fishing property" sells the right to operate the sand pit to a municipality for a fixed sum. Does a capital gain or business income result? After noting that the criteria in IT-373R2, para. 12 on Woodlots applied to this question, CRA went on to discuss s. 12(1)(g):

Generally, the courts have rejected the application of this paragraph in the case of an isolated transaction for a specified period and at a specified price. In the absence of a profit à prendre that is, an ongoing continuous right of use, as contrasted to a one-time sale, the courts have generally concluded that a sale resulted in a capital gain and that paragraph 12(1)(g) did not apply.

In an arm's length sale, the corporate "Vendor" disposes of the "Property" (including land options agreements, permits, engineering data and technical and environmental reports) acquired in the development phase of a proposed wind turbine farm. The proceeds allocated to the Property's disposition will be deducted from the Vendor's cumulative Canadian exploration expense ("cumulative CEE") pool, and any remaining proceeds will be considered to relate to goodwill. Respecting the portion allocated to goodwill, CRA stated:

In your situation, the taxpayer is entitled to receive a maximum amount in respect of goodwill that may be reduced where the electricity generation capacity of the wind turbine system is below a certain stated capacity. …[Based on IT-462] provided that the maximum amount represents the fair market value of goodwill at the time of the disposition and provided that there is a reasonable expectation that the electricity generation capacity of the wind turbine system will be met, the maximum amount will be considered to be POD pursuant to element E of the CEC definition.

…[T]he cost recovery method, as described in…IT-426R…applies only to the sale of shares and not to the sale of goodwill.

Could a taxpayer, who did not use the cost recovery method to report the capital gain on the disposition of shares subject to an earnout agreement in a previous taxation year (notwithstanding that the method was available to him at the time) and instead reported his best estimate of the proceeds, request a correction of his previous years income tax returns in order to use this method? CRA stated (TaxInterpretations translation):

The reason which led the taxpayer to wish a change to the method used for reporting the capital gain for a preceding taxation year is that the estimate made at that time differed from that which he now anticipates. From this fact, we believe that there is no error to correct and that the CRA is unable to reassess his prior years' returns.

CRA confirmed its position in 2000-0051115 that:

Where the cost recovery method is not used and the sale price of a property is not certain at the time of the disposition because of an earnout agreement, a taxpayer may estimate the proceeds of disposition and use this amount to compute the capital gain or capital loss pursuant to subsection 40(1) of the Act. Where a taxpayer chooses this method… no amount is deductible as a reserve under subparagraph 40(1)(a)(iii) of the Act by virtue of the fact that…[a] "legally enforceable" entitlement to proceeds of disposition pursuant to the earnout agreement cannot be established until certain future events have occurred such that no amount is "payable" at the time the property is disposed of.

In the case of a reverse earn-out clause (i.e., " the selling price initially is fixed at a maximum equal to the fair market value at the time of the sale, but ... this sale price can be reduced in accordance with a pre-established agreement if certain conditions are not met" so that on such reduction no reimbursement of the sale price occurs):

the actual proceeds of disposition are not determinable at the time of disposition of the shares. Consequently ... the taxpayer will not be entitled to a capital gains reserve under subparagraph 40(1)(a)(iii).

The position in IT-462, para. 5(c) (respecting the sale of property for a fixed sum plus additional amounts based on production exceeding a threshold) and in para. 5(b) continues to apply to dispositions of partnership property held as capital property.

Mr. A holds all the shares of a Canadian-controlled private corporation (Aco), which has a calendar fiscal period and whose only asset is shares of another CCPC (Bco), which has an October 31 year end.

Situation A

Aco sells 35% of its shares of Bco and then, on January 1 of Year 1, disposes of the rest of the shares to an arm's length purchaser ("Buyer"), with the proceeds (other than the first payment on the January 1 disposition date) being subject to an earn-out based on Bco's sales. Accordingly, the annual amounts payable on January 1 of Year 2 through to January 1 of Year 6 are subject to the attainment of specified sales objectives of Bco for Bco's fiscal period ending on October 31 of the preceding year – but are subject to an adjustment on April 30 of the payable year.

Question

Would the 5-year requirement in IT-426R, para. 2(d) be satisfied?

Response

CRA stated (TaxInterpretations translation):

…

the CRA considers that an earnout feature in a sale agreement ends at the time the last contingent amount may become payable pursuant to the sale agreement.

Particular Situation A

In Situation A, October 31 of Year 1 marks the beginning of the five-year calculation period referred to in paragraph 2(d) of the Bulletin. ...

[I]t could be possible to calculate with certainty a payment before the final financial statements of Corporation B are available. Nevertheless, it is a question of fact that cannot be decided without having first examined all the facts relating to a particular situation.

In this case, the earn-out clause must terminate on October 31 of Year 6 in order for the condition stipulated in paragraph 2(d) of the Bulletin to be satisfied. In this regard, if it were not possible to calculate all payments with certainty within the five-year period ... i.e., [by] October 31 of Year 1, we would be of the view that the duration of the earnout clause likely exceeded five years.

Situation B

Mr. A sells 35% of his shares of Aco and then, on January 1 of Year 1, disposes of the rest of the shares to Buyer, with the proceeds (other than the first payment on the January 1 disposition date) being subject to an earn-out based on Bco's sales. Accordingly, the annual amounts payable on January 1 of Years 2 and 3 are based on the sales of Bco – but are subject to an adjustment on April 30 of Year 2 or 3, as the case may be.

Question

Would A be able to use the cost recovery method?

Response

CRA stated (TaxInterpretations translation):

[T]he earn-out clause is not tied to future amounts generated by underlying properties utilized in the course of a business carried on by Corporation A but rather to properties held by Corporation B. Therefore, we are of the view that the cost recovery method cannot be utilized by Mr. A ... .

The Vendor sold a percentage interest in mineral claims for consideration including shares to be issued by the public-company purchaser, to be issued over a four-year period. The Directorate noted that the shares’ market price could “fluctuate greatly,” and indicated that the TSO accordingly might:

conclude that such portion of the proceeds of disposition for the Mining Properties by the Vendor is not determinable prior to the date of issuance of the shares by the Purchaser and that such portion of the proceeds of disposition would be recognized for tax purposes at the times of their issuance … .

Three alternative scenarios apply to the sale of the client list of a retiring professional:

1. The sale price will be 25% of the fees earned over the next four years from the transferred clients, without a minimum or maximum.

2. The same, except that a $100,000 minimum amount is guaranteed, which will be paid at the end of the four-year period.

3. There is a $400,000 maximum amount (and no minimum). If it is subsequently projected that 25% of the annual billings will not produce $400,000 over the four-year period, that amount is reduced.

CCRA indicated:

Scenario 1 – s. 12(1)(g) would apply.

Scenario 2 - IT-462, para. 5(d), the $100,000 minimum amount is an amount that the taxpayer has become or may become entitled to receive for the purposes of para. (a) of Variable E of the CEC at the time of the sale of the client list and, thereafter, additional amounts resulting from the 25% of fees earned over the next four years could constitute income pursuant to s. 12(1)(g).

Scenario 3 – S. 12(1)(g) would not apply if the $400,000 maximum amount equals the fair market value of the property at the time of the sale, even though this maximum may subsequently be reduced in the event that the total fees collected over the four years do not reach this maximum. In this situation, s. 14 would apply, so that the $400,000 sale price would be included in para. (a) of E of the CEC in the taxation year of the sale of the client list, given that there is a possibility that the vendor may be able to claim this amount. If (in the 4^th year) a definitive reduction in the sale price becomes established, the CEC will become positive and, if the taxpayer no longer owns eligible capital property and has ceased carrying on the business, s. 24(1)(a) would allow the taxpayer to deduct the CEC.

CCRA further “noted that the cost recovery method only applies to shares sold under a contract with an earning capacity clause where the conditions listed in paragraph 1 of [IT-426] are satisfied."

Respecting a submission that accrued royalties were not required to be included in the taxpayer's income because they were not received in the year as described in paragraph 12(1)(g), the Agency indicated that s. 12(1) does not exclude from income amounts that otherwise would be required to be included in income under s. 9(1) that, rather, expands the range of amounts that may be included in income.

On a sale of the business of a pharmacist, the consideration for the goodwill sold is equal to the number of prescriptions sold over a 12-month period multiplied by a set amount ($2.50) per prescription but is increased by a further $2.50 per such number of prescriptions for each completed two-year period during the six-year term of the agreement during which the lease was successfully renewed. CCRA stated:

[I]f the value of goodwill varied according to the number of prescriptions sold during each period preceding that of the lease renewal, we are of the view that the position described in paragraph 5(c) … IT-462 could apply.

The shareholders of a CCPC (Xco) agreed to sell their Xco shares to a public corporation (Yco) in consideration for an upfront cash payment, and for shares of Yco received on an s. 85(1) rollover basis – but with a clause (the “Clause”) in the sale agreement providing that in one year’s time they would receive a further cash payment for each of their Yco shares equal to the deficiency in its trading price at that time as compared to the portion of the sale price allocated to such shares.

CCRA indicated that the Clause was not a price-adjustment clause to which IT-169 could apply nor an earnout to which IT-426 could apply. Furthermore, s. 12(1)(g) did not apply as the amount to be paid pursuant to the Clause was not an amount dependent on the use of or production from property. Instead, the right to receive an amount pursuant to the Clause was a capital property, forming part of the non-share consideration that the vendors received on the disposition of their shares in Xco, the cost of which was determined pursuant to paragraph 85(1)(f).

When the right to receive this amount was settled (or cancelled), such property would be considered to have been disposed of, giving rise to a capital gain or capital loss.

Regarding the statement in para. 1(d) of the February 19, 1979 version of IT-426 that "the duration of the sale agreement does not exceed 5 years", CCRA stated:

[I]f all the payments due under a contract cannot be precisely computed within the 5-year period beginning at the time the contract is formed, it is very likely that the term of the contract will exceed 5 years. However, the fact that all the amounts in question could be computed and paid within the 5-year period commencing at the time the contract was formed is not in itself a conclusive factor marking the end of a contract.

Regarding the fourth earnout condition in IT-426, which stipulates that "the term of the contract must not exceed five years", CCRA indicated that this period commenced when the contract was formed in accordance with provincial law (which might be the date written on the contract), and that the period would generally not end at least until all payments to be made could be calculated accurately, and that the period could extend beyond this point, e.g., where there was a potential for subsequent adjustments.

The expression “calculated with certainty” in IT-426, para. 5 “refers to the moment when all the relevant facts are known with a sufficient degree of certainty to allow a fixed and certain value to be established.

The shareholders, in consideration for granting the acquirer an option to acquire their shares in two years for a nominal sum, were entitled to receive, over the two-year period, an amount equal to the agreed sale price (calculated on the basis of the corporation's profitability) less the nominal exercise price.

After indicating that “in the absence of sham, we are of the view that the granting of an option is the granting of an option and a share sale is a share sale,” CCRA went on to indicate that the cost-recovery method under IT-426 would not be available assuming that, here, there was a disposition of stock options rather than shares, and further indicated that “it is possible that paragraph 12(1)(g) could apply to all payments made under the earnout clause or that the total proceeds must be calculated on the date of sale for the purposes of subsection 49(1).”

S.12(1)(g) can apply to the disposition of a partnership interest.

Re application of s. 12(1)(g) to woodlot operation.

S.12(1)(g) does not apply where the consideration received for the sale of software includes a note the timing of payment of which depends on the revenue produced from the exploitation of the software.

Canco (wholly-owned by NRco) and its wholly-owned subsidiary (Canco Sub) hold respective 99.9% and 0.1% interests in the "Partnership," which does not carry on business in Canada. The partnership agreement provides that income or loss is allocated only to those who are members at the end of the fiscal period (the calendar year). NRco (a non-resident) made an interest-bearing loan to the Partnership which then lent the proceeds to another Canadian corporation at a higher interest rate.

Before the end of 2015, Canco and Canco Sub disposed of their interests in the Partnership to non-resident subsidiaries of NRco, so that all of the Partnership income or loss for 2015 is allocated to them.

Would the Partnership have "deductible" interest for purposes of applying s. 12(1)(l.1) to Canco and Canco Sub given that its non-resident members at year end were not "taxpayers" and s. 96(1) does not require a partnership to compute income or deductions if no member is a taxpayer? CRA responded:

Canco and Canco Sub would determine their "specified proportion" for their 2015 taxation year based on the allocation of the Partnership's income for the fiscal period ending December 31, 2014… . Accordingly, subsection 18(7) would apply to deem Canco and Canco Sub to owe 99.1% and 0.1% of the Loan and to have paid the corresponding interest.

…[S]ubsection 96(1.01) would apply to deem Canco and Canco Sub to be members of the Partnership at the end of 2015… . [S]ubsection 96(1.01) applies for purposes of subsection 96(1)… . This means that although a person may have ceased to be a partner before the partnership's fiscal period end, subsection 96(1) is applicable and a portion of the partnership's net income or loss is allocable to the person pursuant to subsection 96(1).

…[T]the interest paid by the Partnership on the Loan is "deductible" by the Partnership for the purposes of subparagraph (i) of element A in the formula in paragraph 12(1)(l.1)… . Accordingly, paragraph 12(1)(l.1)… will apply to include an amount in the income of Canco and Canco Sub… .

Further, it might also be noted that the original structure could result in the application of section 245... .

After finding that a sabbatical leave plan did not satisfy the requirements of Reg. 6801(a) as a deferred salary leave plan (for multiple reasons including the length and timing of the sabbatical leave and provision for notional employer contributions to match the salary amounts that the participating employees elected to defer), CRA went on to note that he amount of salary that an employee deferred in a particular taxation year together with the amount of any matching notional employer contribution, would constitute a “deferred amount,” to be included in computing the employee’s income for that year pursuant to ss. 6(11) and 6(1)(a), with receiving a s. 20(1)(oo) deduction for the same year as the s. 6(1)(a) inclusion.

On the forfeiture of all notional employer contributions on the early termination of participation in the Plan, the amount of the employer contributions (previously included in the employees income) would be deductible by the employee pursuant to s. 8(1)(o), and the employer, who would have previously taken a s. 20(1)(oo) deduction, would now have a s. 12(1)(n.2) inclusion.

Are amounts received by an employer on the winding-up of an RCA (where its contributions were deducted in computing its business income) included in its income from business or property? CRA stated:

Since one of the conditions for an amount to be included in a taxpayer's income pursuant to paragraph 12(1)(n.3) is that the amount be received by the taxpayer in the course of a business… such income would be characterized as business income. … If it were determined that the amount was not received in the course of a business, the amount would nonetheless be included in income pursuant to subsection 56(1)… .

"Any amount received by the employer from a custodian as a refund of refundable taxes is included in the employer's income under paragraph 12(1)(n.3) of the Act. Where, under an arrangement, the securing of assets for a letter of credit can be considered a contribution to a RCA and the letter of credit is subsequently cancelled, it is our view that an amount would be included in the income of the employer under paragraph 12(1)(n.3) ..."

Is AgriInvest and AgriStability income support, received by a farmer, farming income or other income to that individual? CRA stated:

The AgriInvest and AgriStability programs are programs established under the Farm Income Protection Act. In the province of Quebec, these programs were established in agreement with the province and are administered by La Financière agricole du Québec. The Agri-Québec program of La Financière agricole du Québec is a provincial program complementary to the AgriInvest program.

The AgriInvest and Agri-Québec accounts include two funds: producer deposits, which are paid into Fund 1, are not taxable at the time of withdrawal. Government contributions and accrued interest on both accounts which are deposited in Fund 2, are taxable at the time of withdrawal as investment income under subsection 12(10.2).

All withdrawals from the AgriStability account are taxable as farming business income under paragraph 12(1)(p). On the other hand, producer contributions and administrative expenses incurred are deductible as farming business expenses under paragraph 20(1)(f).

The federal apprenticeship job creation tax credit ("AJCTC") is generally included in income under s. 12(1)(t). CRA noted:

Paragraph 12(1)(t) generally requires a taxpayer to include in income an amount deducted in a preceding taxation year under subsection 127(5) or (6)...in respect of a property acquired or an expenditure made in a preceding taxation year. If an amount is included in income under paragraph 12(1)(t)...in a taxation year, it is not included in income under paragraph 12(1)(x)...for that year or a later taxation year.

A subsidiary sells all of its depreciable property to a third party and, during the same taxation year, commences to be wound up into its parent, so that all its assets and liabilities are distributed - but its dissolution does not occur until after that taxation year. To reduce its taxes payable in the year of the sale, the subsidiary uses a portion of its ITCs pursuant to s.127(5).

CCRA indicated that ITCs deducted by the subsidiary pursuant to s. 127(5) in the taxation year of the winding-up (generally, per IT-126R2, considered to occur at the time of the winding-up distribution) should not be included in computing the subsidiary's income for its taxation year that began after the winding-up; and, in such a situation, the parent corporation must then include the ITCs claimed by the subsidiary in computing its income for its taxation year that began after the winding-up, by virtue of ss. 12(1)(t), 88(1)(e.2) and 87(2)(j.6).

S. 12(2.1) deems an amount received by a beneficiary of a trust as an inducement in respect of activities of the trust, or as a reimbursement or other assistance in respect of an expense of the trust, to have been received in that regard by the trust (so as to potentially engage the application of s. 12(1)(x) at the trust level).

A ban was imposed, effective June 1, 2022, on order execution only service dealers (“OEO Dealers”), i.e., dealers not making a suitability determination before arranging for a client to invest in a mutual fund, from being paid trailer fees by a mutual fund or its manager. However, there is a temporary exemption (e.g., until May 31, 2025) from this prohibition in order to facilitate the OEO Dealer in paying a rebate of such amounts to their clients who held their investment in the mutual fund prior to June 1, 2022, or who transferred their mutual fund units into OEO Dealer accounts on or after June 1, 2022 (an “OEO Rebate”). The Directorate stated:

[W]here an OEO Rebate is paid by an OEO Dealer to a unitholder in a trust, in the [above] circumstances … it is likely that the OEO Rebate would be considered to be in respect of the activities of the trust or in respect of an expense of the trust. In the result, subsection 12(2.1) would likely be considered to apply and the amount of the OEO Rebate included in the income of the trust pursuant to paragraph 12(1)(x).

Client B agreed to acquire a life insurance policy from Advisor A, and Advisor A agreed to repay Client B for the accounting fees Client B incurred for the review of the life insurance policy. CRA stated:

[E]xcept as otherwise limited by the Act (e.g., section 18 and 67 …), the reimbursement of the accounting fees paid by Advisor A to Client B would generally be deductible under subsection 9(1) … in computing Advisor A’s income from business for the year in which the amount is incurred.

Client B would include the reimbursement in income pursuant to paragraph 12(1)(x) …[, a] treatment [which] would also apply if Client B did not acquire the life insurance policy.

The above was consistent with 2010-0359401C6 (where instead the advisor paid a cash rebate to the client).

Normally, on the purchase by a client of a GIC of a bank, the bank would receive the face amount of the GIC (say, $21,000) and pay a broker a commission of 0.75% (or $157.50). However, where the broker waived the commission, the client would acquire the GIC for $20.842.50, and realize a capital gain of $157.50 on maturity. Is this correct?

CRA characterized the arrangement as one under which the client invested $21,000 in the GIC, of which $20.842.50 came from the client’s own funds and $157.50 came from the commission received by the broker from the bank which it applied to the payment of the balance of the client’s GIC – so that the cost of the GIC to the Client was $21,000.

After indicating that the latter amount might otherwise be included in the client’s income under s. 12(1)(x), CRA noted that “provided the Client acquires and holds the GIC as capital property, the Client could make the election under subsection 52(2.1) to avoid the application of paragraph 12(1)(x) and reduce the cost of the GIC by the amount of the commission pursuant to paragraph 53(2)(s).”

A governmental authority will acquire a number of residential, commercial, forestry, agricultural and undeveloped properties for a construction project pursuant to privately-negotiated terms including a sales price and further sums agreed to be paid to the owners to compensate them for various losses suffered. In the course of a general discussion, CRA indicated that compensation received for expenses incurred for the purpose of earning income from the taxpayer's business or property (e.g., compensation for the time taken to restore the remainder or for clearing or levelling the land or installing a drainage system) must also be included in computing income pursuant to s. 12(1)(x), except to the extent an election was made pursuant to s. 12(2.2) respecting a related expenditure.

When qualifying small registrants elect to use the “Quick Method” of accounting for GST/HST obligations, they thereby cease to be entitled to claim ITCs or rebates, but are entitled to remit only specified percentages, rather than all, of the GST/HST collectible by them. CRA confirmed that the resulting “net gain experienced by them” (i.e., the percentage amounts they are permitted to keep rather than remit) constitute government assistance pursuant to s. 12(1)(x) and are thus included in their income (assuming no s. 12(2.2), 13(7.1) or 53(2)(k) election). However, since no ITCs (which result in income inclusions under s. 248(16)) can be claimed by them, the GST/HST payable on their deductible expenses is included in the amount of those expenses for income computation purposes.

The Regional Relief and Recovery Fund (“RRRF”) provides liquidity assistance for COVID-affected businesses that have been unable to access other federal pandemic support programs, or that continue to have liquidity needs. For conditionally non-repayable contributions, if certain conditions are met (e.g. a required portion of a contribution is repaid by a certain date), then the remaining amount of the contribution will be forgiven. CRA stated:

[S]ubject to section 9 (or another provision of the Act), the amount of the forgivable portion of the conditionally non-repayable contribution under the RRRF is to be included in the taxpayer’s income in the taxation year in which the amount is received by virtue of paragraph 12(1)(x).

S. 125.7(3) essentially feeds into s. 12(1)(x) by deeming “CEWS” wage subsidies to be government assistance received immediately before the end of the period (of approximately one month) in question. Notwithstanding that, CRA considers it to be quite possible that the assistance will be income under s. 9 rather than s. 12(1)(x). As for the timing of that income inclusion (under either s. 9 or 12(1)(x),) CRA indicated that the CEWS amounts must be included in the taxation year in which the periods fall even if the claims are not made (and received) until after the tax return has been filed for that taxation year. (This will require an amendment to the originally-filed return to be made.)

The one exception to this is illustrated by the example of a June 30, 2020 taxation year of the eligible entity, where the end of period 4 falls on July 4, 2020 (i.e., a few days after the taxation year end). In that case, if s. 12(1)(x) rather than s. 9 is considered to govern, there is a deemed receipt of government assistance on that date, so that the s. 12(1)(x) inclusion will fall into the subsequent taxation year.

A franchisor organizes a contest which is restricted to franchisees. Awards received by a franchisee would be considered to be non-governmental assistance (either taxable under s. 9 or 12(1)(x)) since the award would be based on the merits of the franchisee's application and would be open only to franchisees. In this regard, CRA stated:

[T]he amount would be received by the Corporation in the course of deriving business income from a person who pays the amount in the course of earning income from a business or property, in order to achieve a benefit or advantage for itself or for persons with whom the payer does not deal at arm’s length.

Under an “Organschaft,” a German parent (“Parentco”) and its German subsidiary (“Subco”) can enter into an agreement under which Subco agrees to annually transfer its entire profit determined in accordance with German (statutory) GAAP to Parentco, and Parentco agrees to compensate Subco for any loss incurred under German GAAP. Under the base case scenario (where there is one class of shares wholly-owned by Parentco), CRA would view a profit transfer payment made by Parentco to Subco in respect of an accounting loss of Subco as being a contribution of capital made by Parentco to Subco for purposes of s. 53(1)(c). Such a payment would not be taken into account in computing the earnings, income or loss of either Subco or Parentco.

The taxpayer received a lump-sum payment (the “Payment”) from a major supplier (“ACo”) in consideration for entering into a supplier loyalty agreement (the “Agreement”). Damages equal to the Payment plus interest are payable for breach during the first five years of the Agreement; and the damages amount is reduced on a pro rata basis over the remaining 10-year term. CRA considered that a lump sum payment received from a major supplier for signing a 15-year “supplier loyalty agreement” would be includible in income when received under s. 56.4(2) on the grounds that the loyalty covenant was intended to restrict the way in which the taxpayer made its purchases (i.e., it was in respect of a “restrictive covenant”), and then went on to state:

However, if the amount is not in respect of a restrictive covenant, the Payment appears to be an amount otherwise described in paragraph 12(1)(x)...as an inducement or as assistance. Amounts described in paragraph 12(1)(x) are included in income when they are received. In this instance, the accounting practice of deferring and amortizing such income would be inconsistent with the provisions of the Act and is specifically prohibited under paragraph 18(1)(e)... .

The Ontario apprenticeship training tax credit ("ATTC") is generally included in income under s. 12(1)(x). After noting that a tax credit is considered to be received no later than when it reduces the tax payable for a taxation year, CRA stated that "the reduction of tax payable pursuant to section 43.13 of the [Corporations Tax Act] would occur in the taxation year after the taxation year in which the ATTC was used."

Amounts that are received from the Compensation for Employers of Reservists Program by employers of reservists and by self-employed individuals who are the reservist would be included in income pursuant to s. 9 (or, failing that, under s. 12(1)(x).

In indicating that a break fee should be included in income under s. 12(1)(x) even if it were not includable under s. 9(1), CRA indicated that per BJ Serices it was received "in the course of earning income from a business or property," it was received as an inducement as the target had wished for the taxpayer to make an offer for the target's shares and, in addition, a portion of the break fee may be considered as a reimbursement for expense incurred by the taxpayer.

An insolvent (but not bankrupt) company negotiates a settlement with CRA of unremitted GST for less than the balance owing. CRA stated that "this would be included in income pursuant to subsection 12(1)(x)."

A particular Ontario tax on life insurance corporations ("SAT") is determined as a fixed percentage of the amount by which the corporation's taxable paid-up capital exceeds the total of the corporation's Ontario corporate income tax and corporate minimum tax payable for the year. By virtue of being added to the corporation's corporate minimum tax credit carry forward, this tax may then be deducted to reduce future years' income taxes.

The SAT is a capital tax and not an income tax, notwithstanding its potential creditability against income taxes payable, and therefore the incurring of the tax leads to a corresponding deduction in the computation of income.

As a consequence of this deductibility, when the SAT credit is applied to reduce Ontario corporate income taxes payable in a subsequent taxation year, we would consider it to be an amount received as a reimbursement of an amount that was deducted as an outlay or expense in a prior year, and the amount of the credit applied would be taxable under 12(1)(x)(iv).

Question 2 at the May 4, 2010 CALU Roundtable concerned the situation where (A) Holdco holds an insurance policy on the life of its shareholder, pays the premium and designates its subsidiary as the beneficiary, or (B) the same situation except that the subsidiary is designated as irrevocable beneficiary and reimburses Holdco for the premiums, or (C) there are two sisters (Corporations 1 and Corporation 2) wholly-owned by Mr. A, with Corporation 1 holding an insurance policy on Mr. A's life and paying the premiums, while Corporation 2 is designated as beneficiary and reimburses Corporation 1 for the premiums paid.

Respecting Situations B and C, CRA noted that it would be necessary to review the documentation in determining whether the reimbursement should be included in the income of Holdco (Situation B) or of Corporation 1 (Situation C) under s. 9 or 12(1)(x), and that there would be no s. 15(1) taxable benefit in Situation B for Holdco where the reimbursement is included in its income. What is CRA’s position and reasoning as to the application of ss. 9 and 12(1)(x) in Situations B and C? CRA responded:

The application of section 9, paragraph 12(1)(x), subsections 15(1), 245(2) and 246(1) is a question of fact and each situation must be examined individually. … [T]he CRA will examine any situation that involves a corporate group and where the life insurance proceeds included in a corporation's capital dividend account is not reduced by the adjusted cost base of the policy. This can occur where a corporate group holds the policy and another corporation in the group is beneficiary.

In certain provinces, a licensed insurance advisor is permitted to pay a portion of the commission earned as a "rebate" to a client purchasing an insurance policy. What is the tax treatment of the rebate to the policy purchaser and to the paying advisor? CRA confirmed its position in 2008-0271381E5 that the insurance advisor will include the full amount of the sales commission in business income under s. 9(1) deduct the premium paid under s. 9 (except as otherwise limited by the Act), and that:

The policy purchaser will include the rebate in income pursuant to paragraph 12(1)(x).

A broker makes a payment to a customer out of the commissions earned from an insurance company, as permitted by legislation of the Insurance Council of British Columbia. In finding that “the amount received by a client would be taxable pursuant to paragraph 12(1)(x),” CRA stated:

[A] life insurance policy is a property for the purpose of the Act.

As well, because income from a life insurance policy is taxed under section 12.2 or paragraph 56(1)(j), it is generally our view that an amount received as an inducement to purchase a life insurance policy would be an amount received in the course of earning income from property for the purposes of paragraph 12(1)(x).

With respect to the issuance of information slips for the rebates paid, there is no reporting requirement in respect of such income.

Various programs designed to encourage physicians to settle in remote areas of Quebec. Under one such program, financial assistance is granted to foreign doctors to support them while they are obtaining their Quebec medical licence, with the individual contractually committing to practise for 4 years in a designated region. CRA stated:

[T]hese amounts must be included in computing the recipient's income under paragraph 12(1)(x).

The Quebec tax credit for an on-the-job training period was includible in income under s. 12(1)(x) to the extent that it did not reduce the employer’s wage expense and was not included under s. 9(1). If included under s. 12(1)(x), the timing of recognition was as set out in Income Tax Technical News, No. 29.

A Canadian public company ("Parentco") and non-resident subsidiaries ("Subco1 and Subco2", collectively "Subco") enter into a "Recharge Agreement" under which Subco pays to Parentco an amount equal to the stock option benefit enjoyed by Subco's employees on the exercise of options to acquire shares of Parentco or on a cash surrender of the options.

Provided that the payments received under the Recharge Agreement by Parentco are in respect of services rendered by the employees to Subco, for options granted after the date of the Recharge Agreement, or for the increase in the stock option benefit that arises after the date of the Recharge Agreement on pre-existing options, such payments are not included in the income of Parentco under ss. 9, 90, 5(1) or 56(2), or 12(1)(x).

Regarding a location incentive program of the Quebec government for medical practitioners setting up in designated territories, CRA stated:

[S]igning bonuses paid to physicians under programs established by the Government of Quebec to encourage physicians to establish in remote areas are taxable to physicians who carry on a medical practice in a designated area. Those amounts are not covered by the exceptions to the income inclusion requirement in paragraph 12(1)(x). Thus, those bonus amounts are taxable as business income.

//www.bci.ca/">www.bci.ca): Non-capital losses of BCI are transferred to its affiliate, Bell Canada, pursuant to transactions under which a subsidiary of Bell Canada ("Bell Subco") borrows up to $17 billion on a day-light loan and uses the borrowed money to subscribe for preferred shares of a newly-incorporated subsidiary of BCI ("BCI Subco"), BCI Subco lends the money on a non-interest bearing basis to BCI, BCI lends the same funds on an interest-bearing basis (1 basis point lower than the dividend rate on the preferred shares) to Bell Subco, which pays off the day-light loan. BCI is paid for the loan by the parent of Bell making a capital contribution to a second newly incorporated subsidiary of BCI, with that subsidiary then being wound-up into BCI.

Ruling given that no inclusion in the income of the second subsidiary of BCI under s. 9 or 12(1)(x) in respect of the contribution of capital to it (and that no such inclusion in the income of BCI Subco in respect of periodic contributions of capital to it in order for it to fund dividend payments on the preferred shares).

As an incentive for the sale of exempt life insurance policies (having a savings and investment component) a life insurance brokers would pay to clients purchasing the policies an amount equal to the first-year’s commission earned by the broker from the life insurance company.

The Directorate indicated that the incentive payments were includable in the income of such clients under s. 12(1)(x) (absent any election made under s, 12(2.2) respecting the premiums paid) given inter alia that they were received by such clients “in the course of earning income from … property,” noting in this regard that the expression “in the course of” had been interpreted expansively in Wisener (73 DTC 5065) and in Yonge-Eglinton, and further stating:

[A] life insurance policy is a source of income, that is, property acquired for the purpose of earning income from property, whether or not the life insurance policy is an exempt policy.

CCRA indicated that the Quebec tax credit for film dubbing under s. 1029.8.36.0.2 of the Taxation Act (Quebec) is considered to be received for purposes of the timing of its inclusion in the taxpayer's income under s.12(1)(x) when the taxpayer is entitled to the credit and it is applied as a payment of tax due by the taxpayer or when it is actually paid.

A Quebec sales tax input tax refund is included in income under s. 12(1)(x) when received.

The receipt in Westcoast Energy Inc. v. The Queen, 91 DTC 5334 (FCTD), affirmed 92 DTC 6253 (FCA) would not be considered to be a "refund, contribution, allowance or assistance" for purposes of s. 12(1)(x) of the Act.

Cash receipts of a partnership for assuming contingent liabilities (respecting unfunded supplemental pension and other retirement benefit liabilities) on a purchase transaction were included in income under s. 12(1)(x).

Where a Canadian parent is reimbursed by its foreign subsidiary for the difference between the exercise price and the fair market value of shares in the parent's capital stock issued by it on the exercise by employees of the foreign subsidiary of their employee stock options, that amount will be added to the stated capital of its shares and will not be considered to be received by it "in the course of earning income from business or property". Accordingly, s. 12(1)(x) will not apply.

CCRA indicated that the tax credit under the Quebec Taxation Act for promoting the development of information technologies would be considered to be included in the taxpayer's income under s. 12(1)(x) at the time the taxpayer became entitled to the credit (which required inter alia the submission of a copy of the certificate issued to the taxpayer by the Minister of Finance in respect of an eligible employee or qualified property) and it was applied as a payment of tax due by the corporation or at the time it was actually paid.

A corporation that has received prepaid rent with respect to a building leased by it to another Canadian corporation then transfers the building to a related corporation for proceeds of disposition that are lowered to reflect the assumption by the transferee of the obligations with respect to prepaid rent. No s. 20(24) election is made. In RC's view, the excess of the (unfettered) fair market value of the property over the purchase price will be included in the transferor's income pursuant to s. 9(1) or (12(1)(x).

A provincial investment tax credit is considered to be "received" by the taxpayer at the time it is deducted. Similarly, an investment tax credit that is not deducted in a year because of insufficient tax payable will not reduce capital cost in that year and may be treated as assistance received in future years for inclusion under s. 12(1)(x) or to reduce capital cost under s. 13(7.1).

Respecting a loan that is repayable out of projected revenues, the Directorate stated that "a loan would be a forgivable loan to the extent that the lender is committed to forgive the loan if certain conditions are met by the borrower. Part of such conditions, in our opinion, could be the earning of insufficient film revenue to meet the repayment of the loan."

The redemption of shares for a nominal amount pursuant to their terms would not constitute an inducement for purposes of s. 12(1)(x) as any inducement would have to be received at the time the shares are issued or the terms otherwise established.

S.12(1)(x) could apply to the receipt by a corporation of a premium for granting an option to require it to issue bonds, depending on the particular facts and circumstances.

A grant made pursuant to the initial Small Business Equity Corporations Act (Alberta) to a taxpayer for the purchase of venture capital corporation shares represents a prescribed amount.

Where the manager of a mutual fund trust rebates a portion of the management fee earned by it directly to investors who have invested substantial amounts in the trust, the rebate will be included in the income of the trust.

The Ontario Farm Tax Rebate (entailing a rebate of 75% of property taxes paid on eligible farm land and out-buildings by eligible owners) is required to be included in income under s. 12(1)(x) to the extent it is not applied to reduce the expense for taxes otherwise deductible in the year. Other property tax rebates and fuel tax rebates received in the course of earning income from a business or property would be treated in a similar manner.

Respecting guarantees by the Province of Saskatchewan of loans made to farmers where the Province did not waive its subrogation rights, the Directorate stated that provided the loans were not forgivable loans and:

"Upon the honouring of a guarantee the amount paid by the Province becomes unconditionally repayable to the Province, the granting or the honouring of a guarantee under this program would generally not, in and by themselves, give rise to an amount which would constitute a [farm support payment]. For these purposes, a loan would generally be a forgivable loan to the extent that the lender is committed to forgive the loan if certain conditions are met by the borrower."

A loan from the Agricultural Credit Corporation of Saskatchewan generally would be regarded as a forgivable loan and, therefore, as assistance "to the extent that the lender is committed to forgive the loan if certain conditions are met by the borrower. In our view, an income inclusion under paragraph 12(1)(x) of the Act with regard to a forgivable loan arises at the time the loan is granted."

A reimbursement or other assistance received in respect of eligible capital property cannot be applied to offset the cost amount of that property and, instead, must be included in income.

Amounts paid to Atlantic hog farmers were repayable, except that "if certain conditions subsequent are met they may be forgiven". The Directorate commented that "it is the Department's general position that where the conditions for repayment of a government loan are so remote that forgiveness of the debt is the usual result, the amount should pursuant to paragraph 12(1)(x) of the Act be included in income, as a forgivable loan even where the loan is not formally described as a forgivable loan", and indicated that no T-Slips would be required in respect of the payments.

Where an amount is included in income under s. 9, s. 12(1)(x) will not apply and, therefore, the election under s. 13(7.4) will not be available.

Payments made by a non-resident corporation to a related corporation to indemnify it for potential penalties and interest relating to income and withholding tax obligations as well as Canadian income tax liabilities would be included in the Canadian corporation's income under s. 12(1)(x). However, the Canadian corporation could elect under s. 12(2.2) to eliminate any adverse impact. Further, there potentially might be no inclusion under s. 12(1)(x) if the indemnity payment was funded by a contribution to capital or a purchase of shares having regard to the exception for payments made in respect of the acquisition by the payor of an interest in the taxpayer.

The Nova Scotia research and development tax credit (which is a deduction in computing provincial income tax) is government assistance, whereas the Ontario research and development super allowance (which is a deduction in computing taxable income for provincial income tax purposes) is not.

No general conclusion has been reached as to whether s. 12(1)(x) may apply to include a premium in the income of the issuer of commercial paper.

FST inventory rebates received pursuant to s. 120 of the Excise Tax Act are considered to be assistance in respect of the cost of property or an outlay or expense and, accordingly, must be included in income.

The interest component of damages received by a limited partnership in respect of interest assessments of its partners as a result of the failure of a principal business corporation to fully renounce amounts under a flow through share agreement to the partnership constituted amounts described in s. 12(1)(x)(iv), given the expansion of that provision to include "outlays" in addition to "expenses" (meaning deductible expenses). However, s. 12(2.2) would provide relief.

Most grants received under the Ontario Fast Start Program will be taxable under s. 12(1)(x).

A government loan under which the corporation must commence repayment on the earlier of 2004 and the time at which cumulative sales levels have been reached, with the amount of repayment being based on the volume of annual sales and continuing until the loan is completely repaid, is a forgivable loan for purposes of s. 12(1)(x) because the loan is not unconditionally repayable.

Where a tenant inducement payment is required to be included in income under s. 9 in accordance with GAAP, s. 12(1)(x) has no application, and no election may be made under s. 13(7.4) or s. 53(2.1).

Where an amount of assistance falls within both ss.12(1)(x) and 37(1)(b), the latter will prevail.

Where a Canadian parent makes a contribution of capital to its wholly-owned subsidiary corporation to fund capital expenditures on SR&ED, the amount received by the subsidiary will not be treated as "non-government assistance" for purposes of s. 37(1)(d).

Instead of requiring the inclusion in income of payments which grape farmers received from the Department of Agriculture to remove grapes from production by destroying the grapevines or removing the post and wires relating thereto, RC may be prepared to treat such payments as reducing the adjusted cost base of the related assets, or as being (partial) proceeds of disposition.

Amounts of government assistance which decrease the cost of property pursuant to s. 53(2)(k) do not have to be included in the taxpayer's income by virtue of s. 12(1)(x)(vi).

Although s. 12(1)(y) does not deal with this, s. 6(1)(l) “allows a benefit relating to the operation of an automobile to be included in the income of an employee of a member of a partnership since the employee enjoys the benefit because of the employee’s employment.”

S. 32 of the Quebec Mining Duties Act (MDA) provided a credit to an operator equal generally to an amount not exceeding 12% of the lesser of (i) its annual loss (excluding the portion thereof attributable to ore processing activities) and (ii) the amount by which the expenses in respect of exploration, mineral deposit evaluation and mine development work, incurred by the operator for the fiscal period in connection with the mining operation, exceeds the amount of government assistance that the operator received or was entitled to receive relating to those expenses.

In finding that this credit was not required to be included in income under s. 12(1)(x.2), CRA stated:

[T]here appears to be no relationship between the RDCL and the amount of duty that the taxpayer must pay, will pay or has had to pay by virtue of the MDA. … The fact of incurring a loss is the only real condition to be satisfied in order to claim an RDCL amount. Consequently, an RDCL amount received by a taxpayer would not be an amount received in respect of an amount receivable by Her Majesty in right of the Province of Quebec under the MDA or any other Act.