Morguard Corporation v. The Queen – When Will A "Break Fee" Be Considered Income?

In Morguard Corporation v. The Queen, 2012 TCC 55, Justice Boyle of the Tax Court of Canada considered whether a "break fee" received by a predecessor of the Appellant (for the purposes of this discussion, the "Appellant") in respect of its unsuccessful attempted acquisition of a public corporation, was received on account of income or capital (there was also a procedural issue that will not be discussed in this post). Based on the approach set out in Ikea Ltd. v. Canada, [1988] 1 SCR 196, 98 DTC 6092, affirming 96 DTC 6526 (FCA) and 94 DTC 1112 (TCC), Justice Boyle concluded that, on the facts, a break fee such as the one received by the Appellant was taxable on account of income because the negotiation and inclusion of break fees in the Appellant's acquisition agreements was an integral part of its commercial business operations and activities.