Glencore: Break Fee Received was “Inducement” Income under Paragraph 12(1)(x)

By Julia Zhuo, Torys LLP[1]

INTRODUCTION

In Glencore Canada Corporation v. The Queen (2024 FCA 3), the Federal Court of Appeal (“FCA”) dismissed the taxpayer’s appeal on whether fees related to a failed bid were received on income or capital account. The FCA held that the fees were included in income as an inducement payment pursuant to paragraph 12(1)(x).[2]

The taxpayer, Glencore, was a successor of Falconbridge, a mining company. Glencore was reassessed for the fees received by Falconbridge in 1996. In that year, Falconbridge entered into merger arrangements with Diamond Fields to acquire its publicly traded shares, and indirectly through its acquisition of the shares, a mining deposit indirectly owned by Diamond Fields (the “Deposit”). Falconbridge received a commitment fee of approximately $28 million (the “Commitment Fee”) upon entering into the merger arrangements. Later, Diamond Fields’ shareholders accepted a competing offer from Inco, a third party, to acquire the Diamond Fields shares, following which Falconbridge received a non-completion fee of approximately $73 million (the “Non-Completion Fee”, and collectively with the Commitment Fee, the “Fees”). The Non-Completion Fee is what practitioners commonly referred to as a break fee.