ࡱ> |{)( 3/ 00DArialngsRomanllT-0DTahomagsRomanllT-0 DTimes New RomanllT-00DWingdingsRomanllT-0 A .  @n?" dd@  @@`` H@<` !"&'()*+,.36789;: 0AA@8wN ʚ;lZ{8ʚ;g4kdkd] 0^ppp@ <4dddd8A10l0-<4!d!d8A10l0- 80___PPT10 pp?  %L#"The new tax rules for non-competes" IJohn Loukidelis Simpson Wigle LLP blog.simpsonwigle.com November 29, 2007JZJ."    Background  pThe Queen v. Fortino, 1999 CanLII 9258 (F.C.A.) Manrell v. The Queen, 2003 FCA 128 Individual sells shares and receives amounts for a non-compete. Amounts for non-compete not taxablePSfeR e Government response Manrell released March, 2003. Government response by press release October 7, 2003 Complex (overkill?) CRA can second-guess allocation arrived at by parties"   New section 56.4 New section 56.4 in Bill C-33, but it died when Parliament was prorogued on September 14 Parliament began sitting again in October ! Definitions  *  restrictive covenant , of a taxpayer, means an agreement entered into, an undertaking made, or a waiver of an advantage or right by the taxpayer (other than an agreement or undertaking for the disposition of the taxpayer s property or  except where the obligation being satisfied is in respect of a right to property or services that the taxpayer acquired for less than its fair market value  for the satisfaction of an obligation described in section 49.1 that is not a disposition), whether legally enforceable or not, that affects, or is intended to affect, in any way whatever, the acquisition or provision of property or services by the taxpayer or by another taxpayer that does not deal at arm s length with the taxpayer. A restrictive covenant (an  RC ) includes a non-compete$P8P8 0 Definitions  What is a non-compete?  An undertaking [& ] not to provide, directly or indirectly, property or services in competition with the property or services provided or to be provided by the purchaser  " Tax on RC   Taxpayer must include in income an amount  in respect of [an RC] of the taxpayer that is received or receivable in the year by the taxpayer or a non-arm s length person UNLESS no amount allocated and certain conditions met parties elect for a non-compete amount received*Z_Z_ #Exception by allocation vAvoid trouble by not allocating consideration to non-compete? New paragraph 68(c) permits CRA to re-allocate consideration to the non-compete despite the agreement of arm s-length parties ,Exception by allocation Application of section 68 excluded in certain cases where non-competes given Exclusions only apply to transactions between arm s-length parties When? Arm s-length employees granting RCs Amount rec d for goodwill and election filed Sale of shares*``.  < /Exception by allocation Exception not applicable to redemption of shares 85 and 97(2) cannot apply to sale of property Non-compete granted to preserve value of property disposed & 1Problems Father and son run business but only the father owns shares. Purchaser requires non-compete from son. Section 68 exception will not apply. Section 68 exceptions not available for an RC given for something other than non-compete & $Exception by election What if amount is paid for RC? Subsection 56.4(3) exceptions available only for parties at arm s length Three exceptions: (a) ITA would include the amount as employment income (no election required) (b) Not applicable to sale of goodwill if election filed (c) Grant of non-compete in respect of a disposition of an  eligible interest if election filed <zZZZzb % .(c)  Eligible Interest  Eligible interest: capital property a partnership interest in a partnership that carries on a business OR share of a corporation that carries on a business OR share of Holdco where 90% of its fmv is attributable to eligible interests in one other corporation>ZZ.  ? ' (c) Further conditions Cannot elect where shares redeemed or 85 or 97(2) apply to the disposition Vendor must add amount to proceeds of disposition for eligible interest  2Problems Narrow definition of  eligible interest eg Holdco owns two Opcos of equal value election not available Exceptions apply only to arm s-length parties. 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(2 .The new tax rules for  .. (2 -The new tax rules for  ."System9-@Tahoma-.  2 :non..  2 9non.-@Tahoma-.  2 :'-..  2 9&-.-@Tahoma-. 2 :+competes .. 2 9*competes .-@Tahoma-. 2 LJohn Loukidelis.. 2 KJohn Loukidelis.-@Tahoma-. !2 TSimpson Wigle LLP .. !2 SSimpson Wigle LLP .-@Tahoma-. '2 \blog.simpsonwigle.com .. '2 [blog.simpsonwigle.com .-@Tahoma-. !2 dNovember 29, 2007... !2 cNovember 29, 2007..-՜.+,0     On-screen ShowSimpson Wigle LLP? ArialTahomaTimes New Roman WingdingsShimmer#The new tax rules for non-competes BackgroundGovernment responseNew section 56.4 Definitions Definitions Tax on RC Exception by allocationException by allocationException by allocation ProblemsException by election(c) Eligible Interest(c) Further conditions Problems  Fonts UsedDesign Template Slide Titles_johnljohnl  !"#$%&'()*+,-./0123456789:;<=>?ABCDEFGHIJKLMNOPQRSTUVWXYZ[\]^_`abcdefghijlmnopqrtuvwxyz}Root EntrydO)Current UsersSummaryInformation(@XTPowerPoint Document(DocumentSummaryInformation8k