In Morguard Corporation v. The Queen, the Federal Court of Appeal (FCA) upheld the Tax Court of Canada decision that a “break fee” received on an attempted acquisition of a target company was ordinary income to the recipient. Critical to the FCA’s decision was the trial judge’s findings of fact: namely, that Morguard pursued the acquisition in accordance with its established business strategy and in the ordinary course of its normal business operations, and further, that the receipt of the break fee was a normal and expected incident of these business activities. The FCA distinguished the “deductible expense” cases in Neonex International Ltd. v. Canada and Firestone v. Canada largely on the basis of the facts in those cases (even though the basic facts in those cases are strikingly similar to those in this case). The FCA further said that Ikea Ltd v. Canada is the leading case on the characterization of extraordinary or unusual receipts in the business context. There, the Supreme Court of Canada held that a tenant inducement payment was an income receipt inextricably linked to the business operations of Ikea, even though it was received as a result of negotiations for a long-term lease (which would clearly be a capital asset). I suspect Morguard will likely seek leave to appeal to the Supreme Court of Canada.