Federal Court of Appeal dismisses taxpayer’s appeal in Morguard: Trial judge made no error in concluding that a “break fee” was income

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The Federal Court of Appeal has dismissed the taxpayer’s appeal in Morguard Corporation v The Queen.

(See our previous posts on the case here, here and here.)

Justice Sharlow wrote for the panel which also included Justice Evans and Justice Stratas.  She agreed with the reasoning of the trial judge that Ikea Ltd. v. Canada is indeed the leading case on the characterization of extraordinary or unusual receipts in the business context, and found that his application of the principles stated by the Supreme Court of Canada in Ikea was correct. The court noted that Ikea was not based on a particular factual finding, but “involved consideration of a number of factors, including the commercial purpose of the payment and its relationship to the business operations of the recipient.”

The Court of Appeal found that the trial judge made no error in concluding, on the facts of the case, that the break fee received by Morguard as the result of a failed takeover bid was income and not capital. The appeal was dismissed with costs.