TCC rules against Morguard Corporation: Break fee was fully taxable as an income receipt

Tax Controversy & Dispute Resolution ()

On February 24, 2012, the Tax Court of Canada (TCC) released its decision in Morguard Corporation v. The Queen1 —the first Canadian case that addresses the tax treatment of a break fee from the perspective of the recipient.

In Morguard, the TCC found that the taxpayer had received the break fee as an integral part of, and in the ordinary course of, its regular business operations, which consisted of the acquisition of significant positions in public real estate companies. It also found that the receipt of the break fee had no linkage to a capital purpose. For these reasons, the break fee was found to have been received by the taxpayer on account of income.

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1. 2012 TCC 55