Notwithstanding 6051944, CRA will not revisit its policy on potentially limiting the deductibility of management fees paid by an opco to a management holdco

In the 6051944 Canada Inc. case, Favreau J found that a fee paid by a private company (engaged in a new home construction business) to its two shareholder-management companies, which was significantly higher than for other years when operating profits had been lower, was reasonable for ETA purposes (rather than being "merely a profit distribution mechanism," as alleged by the Crown). In response to a query on whether CRA would revisit its position on the reasonableness of management fees paid by an operating company to a holding company that is owned by an individual who is the ultimate operator/manager, CRA indicated that this was a (GST/HST) informal procedure case that “therefore” had limited precedential value, there were no plans for such a review and the reasonableness of an expense under ITA s. 67 was a question of fact.

There does not appear to a lot of difference in the judicial weight given to informal procedure cases which have been properly argued by counsel, and regular cases. It is difficult to extract any broad principles from the 6051944 case (other than, perhaps, that there is nothing particularly wrong with a management fee that varies with the success of the business), so that CRA instead should have used its other stock response, that the case was decided on its facts.

Neal Armstrong. Summary of 5 January 2016 T.I. 2015-0622991E5 under ITA s. 67.