Principal Issues: What would be the main tax consequences for "OPCO" and its shareholders where, in a particular fact situation, automobiles owned by OPCO would be used primarily for the personal use and enjoyment of certain individuals (one being a direct shareholder of OPCO, another being an indirect shareholder that controls OPCO and the others being persons related to the indirect shareholder that controls OPCO).
Position: An amount would have to be included in the income of the individual owning shares directly in OPCO under subsections 15(1) and 15(5). The application of subsection 246(1) would have to be considered with respect to the automobiles used by the other individuals. With respect to the individual that ultimately controls OPCO, it would have to be determined if he received the benefit in his capacity as an employee, or in the capacity as indirect shareholder. The automobiles would constitute personal-use property and would not be included in OPCO's inventory. Consequently, OPCO could not, in computing its income, benefit from any deduction with respect to the cost of the automobiles. Subsection 10(1) would also not be applicable. Furthermore, paragraph 18(1)(a) would preclude OPCO from deducting any other amount in respect of the automobiles. There would be no deemed disposition under subsection 45(1) upon the conversion, if any, of the automobiles from inventory to capital property (personal-use property). If the individual that ultimately controls OPCO received the benefit in his capacity as an employee and if the automobile is not used primarily for his personal use or enjoyment, such automobile could be included in OPCO's inventory. Consequently, the cost of such automobile would remain pertinent for the computation of OPCO's income. Subsection 10(1) would also be applicable in respect of such automobile. In such circumstances and subject to paragraph 18(1)(a) and section 67, OPCO could possibly deduct some other amounts in respect of the said automobile.
Reasons: Wording of the Act.
Le 5 novembre 2003