Words and Phrases - "inducement"
14 May 2001 Internal T.I. 2001-0065717 F - PAIEMENT INCITATIF REVENUE DE LOCATION
CCRA indicated that tenant inducements made by a landlord in the form of building additions or improvements to the rented premises were non-deductible capital expenditures of the landlord.
Glencore Canada Corporation v. Canada, 2024 FCA 3
An integrated nickel-mining public company (“Falconbridge”), entered into merger agreements with a more junior public company (“Diamond Fields”) which, through a 75%-owned subsidiary, held a valuable deposit at Voisey’s Bay in Newfoundland. The merger agreements provided for the immediate payment by Diamond Fields of a “Commitment Fee” of $28.2 million, and for the payment of a break fee of $73.3 million (calculated to bring the total of the two fees (the “Fees”) to 2.5% of the transaction value) on the completion by Diamond Fields of any competing offer. This occurred – the offer of another public company (“Inco” – the 25% minority shareholder) was accepted by the Diamond Fields shareholders, thereby triggering the payment by Diamond Fields of the break fee.
Woods JA concluded that the fees (less a reduction for bid-related expenses pursuant to s. 12(1)(x)(_)) were required by s. 12(1)(x) to be included in computing Falconbridge’s income from a business or property. Among other findings:
- “Diamond Fields paid the Fees in order to entice Falconbridge to make an offer pursuant to the merger arrangements” so that it was “reasonable to consider that the Fees were received by Falconbridge as an inducement for the purposes of s. 12(1)(x)” (para. 61 – and in this regard “the evidence as to Falconbridge’s motivation to negotiate a fee (i.e., to deter another bidder and to earn a profit if the bid failed) is not relevant to this issue” (para. 63); and
- “The Fees were linked to Falconbridge’s operations as a nickel mining company”, which “required access to ore deposits” so that they were received “in the course of” those activities (a phrase which was essentially equated with "in connection with") (para. 70); furthermore, “the Fees were linked to an acquisition of shares that had the capacity to produce property income” so that they were “also received in the course of earning income from property” (para. 71).
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 9 - Compensation Payments | break fee was a capital receipt | 188 |
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Property | break fee was not consideration for the disposition of a merger right as there was no such “right” | 215 |
| Tax Topics - Income Tax Act - Section 54 - Capital Property | break fee was not proceeds of disposition of a capital property | 176 |
14 November 2007 Internal T.I. 2007-0254601I7 F - Paiement incitatif - Bon de souscription
As part of transactions for a sale of a business of Aco to a purchaser (Bco) for a cash sale price, and the entering into of an agreement for the provision of services by Aco to Bco (the “Operating Agreement”), the parent of Bco (Cco) agreed to issue a warrant on its shares to Aco. After noting that “a payment that is made to induce the recipient to do something will generally be considered an inducement payment,” the Directorate found that the value of the warrant was to be included in Aco’s income given that inter alia “[a]ccording to Aco's minutes, it appears that the warrant induced Aco to enter into the operating agreement for a period of XXXXXXXXXX years instead of a shorter period” and only the cash consideration was treated by the parties as the sale price for the assets. The warrant qualified as “any other form of inducement.”
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 52 - Subsection 52(1) | value of share purchase warrant included in recipient’s income under s. 12(1)(x) increased ACB of warrant | 91 |