Mr. X sells all the shares of Holdco, which holds all the shares of Opco 1 and Opco 2, to Buyco, which is at arm's length. He grants a non-compete and non-solicitation covenant to Buyco respecting the business of each of Opco 1 and 2.
Q.19(c)
CRA first addressed the potential availability of the exemptions in s. 56.4(7 and s. 56.4(3)(c) in respect of Mr. X's non-compete covenant. Would the answers differ for a non-solicitation clause?
Response
After adverting to the fact that s. 56.4(3)(c)(ii) and s. 56.4(7)(b) refer only to an undertaking not to provide a competitive property or service, CRA stated (Tax Interpretations translation):
If the wording of the non-solicitation covenant is considered as an integral part of the non-compete covenant, the non-solicitation covenant would not by itself disqualify the restrictive covenant for the purposes of the exceptions provided in subparagraph 56.4(3)(c)(ii) or subsection 56.4(7). In such case, the responses ... would be the same.