Trover – Tax Court of Canada finds that a dividend by a sole director could not be backdated to when there was another director

While Ms. Trover was separated from Mr. Trover, their jointly-owned company (Cove) paid amounts into their joint bank account. That same year, she ceased to be a shareholder and director of Cove, and in the subsequent year Mr. Trover, who was now Cove’s sole director and shareholder, purported to sign a resolution that retroactively treated a portion of the amounts paid into their joint bank account as having been a dividend payment by Cove to her. She had not agreed to this treatment.

In finding that Ms. Trover had not received this amount as a dividend (and in reversing the assessment including that amount in her income), Monaghan J stated:

I accept that practice in the “real world” does not always conform with best practice. … [and] that directors and/or shareholders may make a decision and act upon it, even though they may not record that decision in writing until a later date. But that cannot be said to have happened here. All of the evidence is that the only two relevant people, Mr. and Ms. Trower, never agreed that the transfers would be dividends. The decision was a unilateral one by Mr. Trower. He did not have that power before he became the sole shareholder and director.

Neal Armstrong. Summary of Trower v. The Queen, 2019 TCC 77 under s. 82(1)(a).