Recent legislative changes contained in Bill C-48, which
received Royal Assent on June 26, 2013, provide that any
amount received or receivable by a taxpayer in respect of a
restrictive covenant will be treated as ordinary income for income
tax purposes unless specific exceptions apply. These legislative
changes are retroactive to October 7, 2003.
What is a Restrictive Covenant?
Section 56.4 of the Income Tax Act contains the
definition of a restrictive covenant. The definition is quite broad
and effectively captures any type of agreement, whether legally
enforceable or not, that requires the grantor (the individual
agreeing to be bound by the restrictive covenant) to continue to do
or to abstain from doing a certain specified action.
