Income Tax Act — I-3.3 56.4
ess carried on by that employer; (c) the individual deals at arm’s length with the employer and with the vendors; (d) the restrictive covenant is an undertaking by the individual not to provide, directly or indirectly, property or services in competition with property or services provided or to be provided by the purchaser (or by a person related to the purchaser) in the course of carrying on the business to which the restrictive covenant relates; (e) no proceeds are received or receivable by the individual for granting the restrictive covenant; and (f) the amount that can reasonably be regarded to be consideration for the restrictive covenant is received or receivable only by the vendors. Application of subsection (5) — realization of goodwill amount and disposition of property (7) Subject to subsection (10), subsection (5) applies to a restrictive covenant granted by a taxpayer if (a) the restrictive covenant is granted by the taxpayer (in this subsection and subsection (8) referred to as the “vendor”) to (i) another taxpayer (in this subsection referred to as the “purchaser”) with whom the vendor deals at arm’s length (determined without reference to paragraph 251(5)(b)) at the time of the grant of the restrictive covenant, or (ii) another person who is an eligible individual in respect of the vendor at the time of the grant of the restrictive covenant; (b) where subparagraph (a)(i) applies, the restrictive covenant is an undertaking of the vendor not to provide, directly or indirectly, property or services in competition with the property or services provided or to be provided by the purchaser (or by a person related to the purchaser) in the course of carrying on the business to which the restrictive covenant relates, and (i) the amount that can reasonably be regarded as being consideration for the restrictive covenant is (A) included by the vendor in computing a goodwill amount of the vendor, or (B) received or receivable by a corporation that was an eligible corporation of the vendor when the restrictive covenant was granted and included by the eligible corporation in computing a goodwill amount of the eligible corporation in respect of the business to which the restrictive covenant relates, or (ii) it is reasonable to conclude that the restrictive covenant is integral to an agreement in writing, (A) under which the vendor or the vendor’s eligible corporation disposes of property (other than property described in clause (B) or subparagraph (i)) to the purchaser, or the purchaser’s eligible corporation, for consideration that is received or receivable by the vendor, or the vendor’s eligible corporation, as the case may be, or (B) under which shares of the capital stock of a corporation (in this subsection and subsection (12) referred to as the “target corporation”) are disposed of to the purchaser or to another person that is related to the purchaser and with whom the vendor deals at arm’s length (determined without reference to paragraph 251(5)(b)), (c) where subparagraph (a)(ii) applies, the restrictive covenant is an undertaking of the vendor not to provide, directly or indirectly, property or services in competition with the property or services provided or to be provided by the eligible individual (or by an eligible corporation of the eligible individual) in the course of carrying on the business to which the restrictive covenant relates, and (i) either (A) the amount that can reasonably be regarded as being consideration for the restrictive covenant is (I) included by the vendor in computing a goodwill amount of the vendor, or (II) received or receivable by a corporation that was an eligible corporation of the vendor when the restrictive covenant was granted and included by the eligible corporation in computing a goodwill amount of the eligible corporation in respect of the business to which the restrictive covenant relates, or (B) it is reasonable to conclude that the restrictive covenant is integral to an agreemen