A Canadian Acquisitionco acquired Canadian Targetco for a cash base price plus earnout obligations, and then immediately merged with Targetco under a short-form amalgamation. After first finding that these payments were an addition to the cost of the Targetco shares (notwithstanding that such shares had since disappeared), the Rulings Directorate went on to find that, in any event, the earnout payments were not made for the purpose of gaining or producing income from a business for purposes of the eligible capital expenditure definition, stating inter alia:
Amalco has to be placed in the shoes of Acquisitionco at the time of Acquisitionco entering into the Agreement. At that time, the purpose for the Earnout Payments was not to earn income from a business but to acquire a capital asset, i.e., the Shares.