Section CE 9 — Income Tax Act 2007: Restrictive covenants

CE 9 Restrictive covenants When this section applies (1) This section applies when— (a) a person ( person A ) gives an undertaking that restricts, or is intended to restrict, their ability to perform services as an employee, office holder, or independent contractor, whether or not the undertaking is legally enforceable; and (b) a person, whether or not person A, derives an amount for the undertaking. Income (2) The amount is income of person A. Exclusion (3) Subsection (2) does not apply if— (a) person A derives the amount because person A or an associated person sells a business to another person ( person B ); and (b) person A or the associated person and person B agree in writing that the transaction is the sale of a business; and (c) person A derives the amount as consideration for an undertaking by person A not to provide goods or services in competition with the goods or services that person B provides from the business; and (d) person A does not provide services to person B after the sale of the business, other than temporarily providing services incidental to the sale. Sale of all shares in company (4) For the purposes of subsection (3),— (a) the sale of a business includes the sale of shares in a company, but only if the sale is of all the shares in the company and the company— (i) carries on a business; or (ii) directly or indirectly wholly owns another company that carries on a business; and (b) in that case, the words “ person B ” in subsection (3)(c) and (d) mean the company that carries on the business, whether the company referred to in paragraph (a)(i) or the company referred to in paragraph (a)(ii). Sale of part of business (5) For the purposes of subsection (3), the sale of a business includes the sale of part of a business, if the part can be operated separately. Avoidance arrangements (6) Section GB 30 (Arrangements to avoid taxation of restrictive covenant payments) may apply to treat an amount as income under this section. Defined in this Act: amount , arrangement , associated person , business , company , employee , income , share Compare: 2004 No 35 s CE 9