Pangea One Acquisition Holdings XII S.A.R.L. v Canada (January 23, 2020 – 2020 FCA 21, Dawson, Stratas, Woods (author) JJ. A.).
Précis: Pangea entered into a letter agreement concerning the sale of shares of Public Mobile Holdings Inc. and received $3,000,000 from Thomvest Seed Capital Inc. (another shareholder of Public Mobile Holdings Inc.):
 In 2013, Telus Communications Inc. offered to purchase all the shares of Public Mobile Holdings Inc. At the time, the shares were owned by three shareholders, one of which was Pangaea. Pursuant to a unanimous shareholders’ agreement, Pangaea had a veto right such that the other shareholders could not sell their shares without Pangaea’s consent.
 Pangaea made it clear that it was not willing to sell at the price offered. In order to induce Pangaea to accept the offer, another shareholder, Thomvest Seed Capital Inc., provided a payment to Pangaea pursuant to a letter agreement. Under the agreement, Thomvest paid $3,000,000 to Pangaea in return for Pangaea’s agreement to execute a proposed share purchase agreement with Telus. In the share purchase agreement, the three shareholders of Public Mobile would each agree to sell its shares to Telus. Shortly after the letter agreement with Thomvest was signed, the share purchase agreement was executed.
 Thomvest withheld Part XIII tax on the $3,000,000 payment to Pangaea. Pangaea sought a refund of the tax from the Minister of National Revenue which was denied. The Minister also issued an assessment of the tax to Pangaea pursuant to subsection 227(7) of the Act. Pangaea appealed from this assessment to the Tax Court.
Pangea lost in the Tax Court and appealed to the Federal Court of Appeal. The sole question for the Court of Appeal was whether the $3,000,000 was paid in respect of a restrictive covenant. The Court of Appeal concluded that it was and dismissed the appeal with costs fixed in the amount of $1,500 inclusive of disbursements.
Decision: Justice Woods summarized the views of the Court of Appeal in a pithy fashion:
 In my view, none of the text, context or purpose of the legislation supports Pangaea’s submission.
 As for the text, the language used clearly applies more broadly than to non-compete agreements. The provision specifies that a restrictive covenant includes an instrument “intended to affect, in any way whatever” the disposition of property by a taxpayer. Such inclusive language tends to rebut the contention that the language is meant to apply only to non-compete agreements.
 As for the context, Pangaea submits that a textual interpretation of section 56.4 of the Act leads to certain results that were unintended by Parliament. Reference was made to circumstances involving leasehold improvements and section 42 of the Act. This submission does not support the very narrow interpretation that Pangaea suggests. Even if a textual interpretation of section 56.4 gives rise to some applications of the provision that were not intended by Parliament, this is not a sufficient reason to conclude that the provision only applies to non-compete agreements.
 As for a purposive interpretation, Pangaea refers to comments made by the Minister of Finance when the provision was introduced in 2003, and comments by a Department of Finance official when appearing before a Senate Committee in 2008. Neither of these comments support the narrow interpretation that is suggested by Pangaea.
 The interpretation of the term “restrictive covenant” suggested by Pangaea is rejected. In my view, the letter agreement between Pangaea and Thomvest is a “restrictive covenant,” as defined, because the agreement is intended to affect the provision of property by Pangaea by having an effect on its disposition. The intention of the letter agreement is to require Pangaea to sell its shares of Public Mobile by executing the share purchase agreement with Telus. In this way, the agreement is intended to affect the disposition by Pangaea of its shares of Public Mobile.
As a result, the appeal was dismissed with costs fixed in the amount of $1,500 inclusive of disbursements.