Would CRA reconsider 2014-0522961C6, so that the allocation in an agreement of $1 of consideration to a restrictive covenant does not constitute proceeds for the purpose of paragraphs 56.4(6)(e) and (7)(d)? CRA responded that it:
is now prepared to accept that where a contract relating to granting a restrictive covenant uses words such as "$1 and other good and valuable consideration" simply to ensure that the contract is legally binding…such consideration will not, in and of itself, constitute proceeds received or receivable by the particular party for granting the RC for purposes of paragraph 56.4(6)(e) and paragraph 56.4(7)(d). However, this treatment is subject to the potential application of anti-avoidance rules such as subsection 56.4(10)... .
If more than nominal consideration of $1 is paid…the amount of proceeds (or any additional amount deemed to be proceeds by paragraph 68(c)) received or receivable by the taxpayer for the RC would be taxable as ordinary income under subsection 56.4(2) unless one of the three exceptions in subsection 56.4(3) otherwise applies.