The taxpayer received a lump-sum payment (the “Payment”) from a major supplier (“ACo”) in consideration for entering into a supplier loyalty agreement (the “Agreement”). Damages equal to the Payment plus interest are payable for breach during the first five years of the Agreement; and the damages amount is reduced on a pro rata basis over the remaining 10-year term. CRA considered that a lump sum payment received from a major supplier for signing a 15-year “supplier loyalty agreement” would be includible in income when received under s. 56.4(2) on the grounds that the loyalty covenant was intended to restrict the way in which the taxpayer made its purchases (i.e., it was in respect of a “restrictive covenant”), and then went on to state:
However, if the amount is not in respect of a restrictive covenant, the Payment appears to be an amount otherwise described in paragraph 12(1)(x)...as an inducement or as assistance. Amounts described in paragraph 12(1)(x) are included in income when they are received. In this instance, the accounting practice of deferring and amortizing such income would be inconsistent with the provisions of the Act and is specifically prohibited under paragraph 18(1)(e)... .