Restricting the Tax Advantage of Restrictive Covenants
Date:
October 16 2003
On October 7, 2003, the Department of Finance issued a press release announcing its intention to amend the Income Tax Act (the ‘‘Act’’) in order to reverse the Federal Court of Appeal’s decisions in Fortino v. The Queen (2000 DTC 6060 (F.C.A.), aff’g 97 DTC 55 (T.C.C.)) and Manrell v. The Queen (2003 DTC 5225 (F.C.A.), rev’g 2002 DTC 1222 (T.C.C.)) concerning the tax-free receipt of non-competition payments. The proposed amendments are much broader than the circumstances of these cases, and in certain situations can require ordinary income treatment for an amount receivable in respect of a restrictive covenant. As a result, it appears that the pendulum may have swung too far in favour of protecting the public fisc.
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