I-3 - Taxation Act

Section 333.9 Disposition versions

2021-06-04

333.9. Subject to section 333.12, section 421 does not apply to deem consideration to be an amount received or receivable by a taxpayer for a restrictive covenant granted by the taxpayer if

(a)  the restrictive covenant is granted by the taxpayer (in this section and section 333.10 referred to as the “vendor”) to

i.  another taxpayer (in this section referred to as the “purchaser”) with whom the vendor deals at arm’s length, determined without reference to paragraph b of section 20 at the time of the grant of the restrictive covenant, or

ii.  another person who is an eligible individual in respect of the vendor at the time of the grant of the restrictive covenant;

(b)  where subparagraph i of subparagraph a applies, the restrictive covenant is an undertaking of the vendor not to provide, directly or indirectly, property or services in competition with the property or services provided or to be provided by the purchaser, or by a person related to the purchaser, in the course of carrying on the business to which the restrictive covenant relates, and

i.  the amount that can reasonably be regarded as being consideration for the restrictive covenant is

(1)  included by the vendor in computing a goodwill amount of the vendor, or

(2)  received or receivable by a corporation that was an eligible corporation of the vendor when the restrictive covenant was granted and included by the eligible corporation in computing a goodwill amount of the eligible corporation in respect of the business to which the restrictive covenant relates, or

ii.  it is reasonable to conclude that the restrictive covenant is integral to an agreement in writing,

(1)  under which the vendor or the vendor’s eligible corporation disposes of property (other than property to which subparagraph i or subparagraph 2 of this subparagraph ii applies) to the purchaser, or the purchaser’s eligible corporation, for consideration that is received or receivable by the vendor, or the vendor’s eligible corporation, as the case may be, or

(2)  under which shares of the capital stock of a corporation (in this section and section 333.13 referred to as the “target corporation”) are disposed of to the purchaser or to another person that is related to the purchaser and with whom the vendor deals at arm’s length, determined without reference to paragraph b of section 20;

(c)  where subparagraph ii of subparagraph a applies, the restrictive covenant is an undertaking of the vendor not to provide, directly or indirectly, property or services in competition with the property or services provided or to be provided by the eligible individual, or by an eligible corporation of the eligible individual, in the course of carrying on the business to which the restrictive covenant relates, the conditions of the second paragraph are met and

i.  the amount that can reasonably be regarded as being consideration for the restrictive covenant is

(1)  included by the vendor in computing a goodwill amount of the vendor, or

(2)  received or receivable by a corporation that was an eligible corporation of the vendor when the restrictive covenant was granted and included by the eligible corporation in computing a goodwill amount of the eligible corporation in respect of the business to which the restrictive covenant relates, or

ii.  it is reasonable to conclude that the restrictive covenant is integral to an agreement in writing

(1)  under which the vendor or the vendor’s eligible corporation disposes of property (other than property to which subparagraph i or subparagraph 2 of this subparagraph ii applies) to the eligible individual, or the eligible individual’s eligible corporation, for consideration that is received or receivable by the vendor, or the vendor’s eligible corporation, as the case may be, or

(2)  under which shares of the capital stock of the vendor’s eligible corporation (in this section and section 333.13 referred to as the “family corporation”) are disposed of to the eligible individual or to the eligible individual’s eligible corporation;

(d)  no proceeds are received or receivable by the vendor for granting the restrictive covenant;

(e)  section 506 does not apply in respect of the disposition of a share of the target corporation or the family corporation, as the case may be;

(f)  the restrictive covenant can reasonably be regarded to have been granted to maintain or preserve the fair market value of

i.  the benefit of the expenditure derived from the goodwill amount referred to in subparagraph i of subparagraph b or c and for which a joint election referred to in subparagraph g was made,

ii.  the property referred to in subparagraph 1 of subparagraph ii of subparagraph b or c, or

iii.  the shares referred to in subparagraph 2 of subparagraph ii of subparagraph b or c; and

(g)  where applicable, a valid joint election is made under paragraph g of subsection 7 of section 56.4 of the Income Tax Act (R.S.C. 1985, c. 1, (5th Suppl.)) in respect of the restrictive covenant.

The conditions to which subparagraph c of the first paragraph refers are as follows:

(a)  the vendor is resident in Canada at the time the restrictive covenant is granted and at the time of the disposition referred to in subparagraph ii of subparagraph c of the first paragraph; and

(b)  the vendor does not, at any time after the grant of the restrictive covenant and whether directly or indirectly in any manner whatever, have a right in the family corporation or in the eligible corporation of the eligible individual, as the case may be.

Chapter V.2 of Title II of Book I applies in relation to an election made under subsection 7 of section 56.4 of the Income Tax Act.

2009, c. 5, s. 117; 2015, c. 21, s. 164; 2020, c. 16, s. 57; 2021, c. 18, s. 34.

2020-09-24

333.9. Subject to section 333.12, section 421 does not apply to deem consideration to be an amount received or receivable by a taxpayer for a restrictive covenant granted by the taxpayer if

(a)  the restrictive covenant is granted by the taxpayer (in this section and section 333.10 referred to as the “vendor”) to

i.  another taxpayer (in this section referred to as the “purchaser”) with whom the vendor deals at arm’s length, determined without reference to paragraph b of section 20 at the time of the grant of the restrictive covenant, or

ii.  another person who is an eligible individual in respect of the vendor at the time of the grant of the restrictive covenant;

(b)  where subparagraph i of subparagraph a applies, the restrictive covenant is an undertaking of the vendor not to provide, directly or indirectly, property or services in competition with the property or services provided or to be provided by the purchaser, or by a person related to the purchaser, in the course of carrying on the business to which the restrictive covenant relates, and

i.  the amount that can reasonably be regarded as being consideration for the restrictive covenant is

(1)  included by the vendor in computing a goodwill amount of the vendor, or

(2)  received or receivable by a corporation that was an eligible corporation of the vendor when the restrictive covenant was granted and included by the eligible corporation in computing a goodwill amount of the eligible corporation in respect of the business to which the restrictive covenant relates, or

ii.  it is reasonable to conclude that the restrictive covenant is integral to an agreement in writing,

(1)  under which the vendor or the vendor’s eligible corporation disposes of property (other than property to which subparagraph 2 applies) to the purchaser, or the purchaser’s eligible corporation, for consideration that is received or receivable by the vendor, or by the vendor’s eligible corporation, as the case may be, or

(2)  under which shares of the capital stock of a corporation (in this section and section 333.13 referred to as the “target corporation”) are disposed of to the purchaser or to another person that is related to the purchaser and with whom the vendor deals at arm’s length, determined without reference to paragraph b of section 20;

(c)  where subparagraph ii of subparagraph a applies, the restrictive covenant is an undertaking of the vendor not to provide, directly or indirectly, property or services in competition with the property or services provided or to be provided by the eligible individual, or by an eligible corporation of the eligible individual, in the course of carrying on the business to which the restrictive covenant relates, the conditions of the second paragraph are met and

i.  the amount that can reasonably be regarded as being consideration for the restrictive covenant is

(1)  included by the vendor in computing a goodwill amount of the vendor, or

(2)  received or receivable by a corporation that was an eligible corporation of the vendor when the restrictive covenant was granted and included by the eligible corporation in computing a goodwill amount of the eligible corporation in respect of the business to which the restrictive covenant relates, or

ii.  it is reasonable to conclude that the restrictive covenant is integral to an agreement in writing

(1)  under which the vendor or the vendor’s eligible corporation disposes of property (other than property to which subparagraph 2 applies) to the eligible individual, or the eligible individual’s eligible corporation, for consideration that is received or receivable by the vendor, or by the vendor’s eligible corporation, as the case may be, or

(2)  under which shares of the capital stock of the vendor’s eligible corporation (in this section and section 333.13 referred to as the “family corporation”) are disposed of to the eligible individual or to the eligible individual’s eligible corporation;

(d)  no proceeds are received or receivable by the vendor for granting the restrictive covenant;

(e)  section 506 does not apply in respect of the disposition of a share of the target corporation or the family corporation, as the case may be;

(f)  the restrictive covenant can reasonably be regarded to have been granted to maintain or preserve the fair market value of

i.  the benefit of the expenditure derived from the goodwill amount referred to in subparagraph i of subparagraph b or c and for which a joint election referred to in subparagraph g was made,

ii.  the property referred to in subparagraph 1 of subparagraph ii of subparagraph b or c, or

iii.  the shares referred to in subparagraph 2 of subparagraph ii of subparagraph b or c; and

(g)  a valid joint election is made under paragraph g of subsection 7 of section 56.4 of the Income Tax Act (R.S.C. 1985, c. 1, (5th Suppl.)) in respect of the restrictive covenant.

The conditions to which subparagraph c of the first paragraph refers are as follows:

(a)  the vendor is resident in Canada at the time the restrictive covenant is granted and at the time of the disposition referred to in subparagraph ii of subparagraph c of the first paragraph; and

(b)  the vendor does not, at any time after the grant of the restrictive covenant and whether directly or indirectly in any manner whatever, have a right in the family corporation or in the eligible corporation of the eligible individual, as the case may be.

Chapter V.2 of Title II of Book I applies in relation to an election made under subsection 7 of section 56.4 of the Income Tax Act.

2009, c. 5, s. 117; 2015, c. 21, s. 164; 2020, c. 16, s. 57.

2015-10-21

333.9. Subject to section 333.12, section 421 does not apply to deem consideration to be an amount received or receivable by a taxpayer for a restrictive covenant granted by the taxpayer if

(a)  the restrictive covenant is granted by the taxpayer (in this section and section 333.10 referred to as the “vendor”) to

i.  another taxpayer (in this section referred to as the “purchaser”) with whom the vendor deals at arm’s length, determined without reference to paragraph b of section 20 at the time of the grant of the restrictive covenant, or

ii.  another person who is an eligible individual in respect of the vendor at the time of the grant of the restrictive covenant;

(b)  where subparagraph i of subparagraph a applies, the restrictive covenant is an undertaking of the vendor not to provide, directly or indirectly, property or services in competition with the property or services provided or to be provided by the purchaser, or by a person related to the purchaser, in the course of carrying on the business to which the restrictive covenant relates, and

i.  the amount that can reasonably be regarded as being consideration for the restrictive covenant is

(1)  included by the vendor in computing a goodwill amount of the vendor, or

(2)  received or receivable by a corporation that was an eligible corporation of the vendor when the restrictive covenant was granted and included by the eligible corporation in computing a goodwill amount of the eligible corporation in respect of the business to which the restrictive covenant relates, or

ii.  it is reasonable to conclude that the restrictive covenant is integral to an agreement in writing,

(1)  under which the vendor or the vendor’s eligible corporation disposes of property (other than property to which subparagraph 2 applies) to the purchaser, or the purchaser’s eligible corporation, for consideration that is received or receivable by the vendor, or by the vendor’s eligible corporation, as the case may be, or

(2)  under which shares of the capital stock of a corporation (in this section and section 333.13 referred to as the “target corporation”) are disposed of to the purchaser or to another person that is related to the purchaser and with whom the vendor deals at arm’s length, determined without reference to paragraph b of section 20;

(c)  where subparagraph ii of subparagraph a applies, the restrictive covenant is an undertaking of the vendor not to provide, directly or indirectly, property or services in competition with the property or services provided or to be provided by the eligible individual, or by an eligible corporation of the eligible individual, in the course of carrying on the business to which the restrictive covenant relates, the conditions of the second paragraph are met and

i.  the amount that can reasonably be regarded as being consideration for the restrictive covenant is

(1)  included by the vendor in computing a goodwill amount of the vendor, or

(2)  received or receivable by a corporation that was an eligible corporation of the vendor when the restrictive covenant was granted and included by the eligible corporation in computing a goodwill amount of the eligible corporation in respect of the business to which the restrictive covenant relates, or

ii.  it is reasonable to conclude that the restrictive covenant is integral to an agreement in writing

(1)  under which the vendor or the vendor’s eligible corporation disposes of property (other than property to which subparagraph 2 applies) to the eligible individual, or the eligible individual’s eligible corporation, for consideration that is received or receivable by the vendor, or by the vendor’s eligible corporation, as the case may be, or

(2)  under which shares of the capital stock of the vendor’s eligible corporation (in this section and section 333.13 referred to as the “family corporation”) are disposed of to the eligible individual or to the eligible individual’s eligible corporation;

(d)  no proceeds are received or receivable by the vendor for granting the restrictive covenant;

(e)  section 506 does not apply in respect of the disposition of a share of the target corporation or the family corporation, as the case may be;

(f)  the restrictive covenant can reasonably be regarded to have been granted to maintain or preserve the fair market value of

i.  the benefit of the expenditure derived from the goodwill amount referred to in subparagraph i of subparagraph b or c and for which a joint election referred to in subparagraph g was made,

ii.  the property referred to in subparagraph 1 of subparagraph ii of subparagraph b or c, or

iii.  the shares referred to in subparagraph 2 of subparagraph ii of subparagraph b or c; and

(g)  a valid joint election is made under paragraph g of subsection 7 of section 56.4 of the Income Tax Act (R.S.C. 1985, c. 1, (5th Suppl.)) in respect of the restrictive covenant.

The conditions to which subparagraph c of the first paragraph refers are as follows:

(a)  the vendor is resident in Canada at the time the restrictive covenant is granted and at the time of the disposition referred to in subparagraph ii of subparagraph c of the first paragraph; and

(b)  the vendor does not, at any time after the grant of the restrictive covenant and whether directly or indirectly in any manner whatever, have a right or an interest in the family corporation or in the eligible corporation of the eligible individual, as the case may be.

Chapter V.2 of Title II of Book I applies in relation to an election made under subsection 7 of section 56.4 of the Income Tax Act.

2009, c. 5, s. 117; 2015, c. 21, s. 164.

2009-05-15

333.9. Subject to section 333.13, section 421 does not apply to deem consideration to be an amount received or receivable by a taxpayer (in this section referred to as the “vendor”) for a restrictive covenant granted by the taxpayer if

(a)  the restrictive covenant is granted by the vendor to another taxpayer (in this section referred to as the “purchaser”) with whom the vendor deals at arm’s length;

(b)  the restrictive covenant is an undertaking of the vendor not to provide, directly or indirectly, property or services in competition with the property or services provided or to be provided by the purchaser or by a person related to the purchaser in the course of carrying on the business to which the restrictive covenant relates;

(c)  no proceeds are received or receivable by the vendor for granting the restrictive covenant;

(d)  the amount that can reasonably be regarded as being the consideration for the restrictive covenant is

i.  included by the vendor in computing a goodwill amount of the vendor, or

ii.  received or receivable by a corporation that was an eligible corporation of the vendor when the restrictive covenant was granted and included by the eligible corporation in computing a goodwill amount of the eligible corporation in respect of the business to which the restrictive covenant relates;

(e)  the restrictive covenant can reasonably be regarded to have been granted to maintain or preserve the value of goodwill acquired by the purchaser from the vendor or from the vendor’s eligible corporation;

(f)  neither sections 518 to 533 nor the second paragraph of section 614 applies to the disposition of the goodwill by the vendor or the vendor’s eligible corporation;

(g)  no portion of the amount of consideration that can reasonably be regarded as being in part the consideration for the restrictive covenant is received or receivable, directly or indirectly in any manner whatever, by an individual (in this section and section 333.11 referred to as the “non arm’s length individual”) with whom the vendor does not deal at arm’s length or by another taxpayer in which the non arm’s length individual holds, directly or indirectly, an interest; and

(h)  the vendor and the purchaser or, if subparagraph ii of paragraph d applies, the vendor, the eligible corporation and the purchaser, jointly so elect in the prescribed form.

2009, c. 5, s. 117.