Presentation is loading. Please wait.

Presentation is loading. Please wait.

REFRESHER AND UPDATE ON THE RESTRICTIVE COVENANT RULES: PROPOSED SECTION 56.4 K. John Fuller, C.A., LL.B. Entrepreneurial Chartered Accountants of Edmonton.

Similar presentations


Presentation on theme: "REFRESHER AND UPDATE ON THE RESTRICTIVE COVENANT RULES: PROPOSED SECTION 56.4 K. John Fuller, C.A., LL.B. Entrepreneurial Chartered Accountants of Edmonton."— Presentation transcript:

1 REFRESHER AND UPDATE ON THE RESTRICTIVE COVENANT RULES: PROPOSED SECTION 56.4 K. John Fuller, C.A., LL.B. Entrepreneurial Chartered Accountants of Edmonton Society Edmonton: December 7, 2010

2 2 Overview 1.Review of Proposed Section Illustrations a.Actual RC Proceeds  56.4(3) b.Deemed RC Proceeds  68(c)  56.4(6), (7), (8), (9) 3.July 16, 2010 Amendments  56.4(8.1)

3 3 Review of Proposed Section 56.4 Prior to July 16, Application: Any asset or share sale In particular when significant goodwill is included in the saleIn particular when significant goodwill is included in the sale 2.Prior to proposed subsection % income inclusion; or 50% income inclusion; or Tax free (Fortino, Manrell) Tax free (Fortino, Manrell) 3.Where proposed subsection 56.4(2) applies: 100% income inclusion 100% income inclusion

4 4 Review of Proposed Section 56.4 Prior to July 16, (2) There is to be included in computing a taxpayer’s income for a taxation year the total of all amounts each of which is an amount in respect of a restrictive covenant of the taxpayer that is received or receivable in the taxation year by the taxpayer or by a taxpayer with whom the taxpayer does not deal at arm’s length… [emphasis mine]

5 5 Review of Proposed Section 56.4 Prior to July 16, Retroactive application October 7, 2003 October 7, Exceptions to subsection 56.4(2) 50% income inclusion 50% income inclusion 6.Allocable amount received by the vendor as agent for the RC Individual If transferred to RC Individuals within 180 days from date of receipt If transferred to RC Individuals within 180 days from date of receipt

6 6 Review of Proposed Section 56.4 Prior to July 16, 2010 Actual Proceeds: Subsection 56.4(3) provides three exceptions where actual RC Proceeds are received by an RC Individual Deemed Proceeds: Subsections 56.4(5) to (9) generally provide five exceptions where deemed RC Proceeds are received by an RC Individual as a result of the application of paragraph 68(c)

7 7 Review of Proposed Section 56.4 Prior to July 16, 2010 Common Exception Restrictions The RC Individual and the purchaser must deal with each other at arm’s lengthThe RC Individual and the purchaser must deal with each other at arm’s length Section 85, subsection 97(2) nor subsection 84(3) can apply to the disposition by the taxpayerSection 85, subsection 97(2) nor subsection 84(3) can apply to the disposition by the taxpayer May require a joint election between either the RC Individual and the purchaser; or the RC Individual and any NAL IndividualsMay require a joint election between either the RC Individual and the purchaser; or the RC Individual and any NAL Individuals Together with a copy of the RC agreement; andTogether with a copy of the RC agreement; and Due the later of: (i) 6 months after RC is granted; or (ii) 180 days after the proposed subsection 56.4 is assented toDue the later of: (i) 6 months after RC is granted; or (ii) 180 days after the proposed subsection 56.4 is assented to

8 8 ILLUSTRATIONS Prior to July 16, Actual Proceeds – possible favourable result

9 9 ILLUSTRATIONS Prior to July 16, Actual Proceeds – unfavourable result

10 10 ILLUSTRATIONS Prior to July 16, Actual Proceeds – unfavourable result

11 11 ILLUSTRATIONS Prior to July 16, Deemed Proceeds – possible favourable result

12 12 ILLUSTRATIONS Prior to July 16, Deemed Proceeds – possible favourable result

13 13 ILLUSTRATIONS Prior to July 16, Deemed Proceeds – possible favourable result

14 14 ILLUSTRATIONS Prior to July 16, Deemed Proceeds – possible favourable result

15 15 ILLUSTRATIONS Prior to July 16, Deemed Proceeds – possible favourable result

16 16 ILLUSTRATIONS Prior to July 16, Deemed Proceeds – unfavourable result

17 17 July 16, 2010 Amendments 1.Sale of shares to “related” persons Subsection 56.4(8.1) Subsection 56.4(8.1) 2.Sale of assets – less restrictions definition of “eligible corporation” is relaxed definition of “eligible corporation” is relaxed 3.Sale of shares – additional restrictions No actual RC consideration allowed No actual RC consideration allowed

18 18 July 16, 2010 Amendments 1.Sale of shares to “related” persons Purchaser can be an “eligible person” Purchaser can be an “eligible person” An individual 18 years old or older and “related” to the vendor An individual 18 years old or older and “related” to the vendor Purchaser can be an eligible person’s eligible corporation (“Eligible Purchaser Corporation”) Purchaser can be an eligible person’s eligible corporation (“Eligible Purchaser Corporation”) RC Individual cannot have an interest in the Target Corporation or the Eligible Purchaser Corporation subsequent to the sale RC Individual cannot have an interest in the Target Corporation or the Eligible Purchaser Corporation subsequent to the sale Only if selling to an Eligible Purchaser Corporation Only if selling to an Eligible Purchaser Corporation Does not apply if selling to an eligible person Does not apply if selling to an eligible person

19 19 July 16, 2010 Amendments 1.Sale of shares to “related” persons (cont…) Exception does not apply where i) RC Individual’s eligible corporation owns and sells shares of the Target Corporation; and ii) NAL Individuals own shares, directly or indirectly, in the eligible corporation

20 20 July 16, 2010 Amendments 10. Deemed Proceeds – possible favourable result

21 21 July 16, 2010 Amendments 11. Deemed Proceeds – possible favourable result

22 22 July 16, 2010 Amendments 12. Deemed Proceeds – possible favourable result

23 23 July 16, 2010 Amendments 13. Deemed Proceeds – unfavourable result

24 24 July 16, 2010 Amendments 2. Sale of assets – less restrictions “eligible corporation” The new definition of “eligible corporation” no longer requires NAL Individuals hold in aggregate, directly or indirectly, less than 10% of the shares of the Asset Vendor Corporation in order for asset vendor corporations to be an “eligible corporation”

25 25 July 16, 2010 Amendments 14. Deemed proceeds – possible favourable results

26 26 July 16, 2010 Amendments 3.Sale of shares – additional restrictions 56.4(8) Exception No proceeds can be received or receivable by the vendor for granting the restrictive covenant

27 27 July 16, 2010 Amendments 15. Deemed proceeds – unfavourable result

28 28 July 16, 2010 Amendments 16. Deemed proceeds – unfavourable result

29 29 July 16, 2010 Amendments Best circumstances

30 30 July 16, 2010 Amendments Best circumstances

31 31 July 16, 2010 Amendments Best circumstances

32 REFRESHER AND UPDATE ON THE RESTRICTIVE COVENANT RULES: PROPOSED SECTION 56.4 K. John Fuller, C.A., LL.B. Entrepreneurial Chartered Accountants of Edmonton Society Edmonton: December 7, 2010


Download ppt "REFRESHER AND UPDATE ON THE RESTRICTIVE COVENANT RULES: PROPOSED SECTION 56.4 K. John Fuller, C.A., LL.B. Entrepreneurial Chartered Accountants of Edmonton."

Similar presentations


Ads by Google