17 December 2007 Internal T.I. 2007-0236841I7 - GST and Taxable Benefits

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Where 56(2) or 246(1) include a benefit in a shareholder's income, does 15(1.3) include GST in the benefit amount?

Position: Depends on the basis for determination of the benefit amount.

Reasons: Where the benefit is determined by reference to a cost described in subsection 15(1.3) and the benefit amount would be included in the shareholder's income pursuant to section 15 had the benefit been conferred on the shareholder directly, the amount of the benefit will include the taxes described in 15(1.3).

 									December 17, 2007

	Bill Holmes							HEADQUARTERS
	Appeals Division						Income Tax Rulings
	Vancouver Tax Services Office	  			Directorate
	400 - 800 Burrard						Marc Edelson, LL.B.
	Vancouver, B.C. V6Z 2V8					(613) 957-2123

									2007-023684

GST and Taxable Benefits

We are writing in reply to your Email inquiry of May 18, 2007 wherein you requested our views regarding the possible interaction of subsection 15(1.3) with subsections 15(1), 56(2) and 246(1), as more specifically described below. We apologize for the delay in our reply.

In this letter, unless otherwise stated all statutory references are to the Income Tax Act (Canada).

GST As A Taxable Benefit

Where a benefit is conferred by a corporation on its shareholder directly, subsection 15(1) applies to include the amount of the benefit in the shareholder's income. Where the benefit amount that is included in income under section 15 takes into account the cost to a person of purchasing a property or service or an amount payable by a person for the purpose of leasing property, subsection 15(1.3) will include in the benefit amount any taxes, including GST, that were payable in respect of the property or service.

Your inquiry relates to situations where a benefit is not conferred on a shareholder directly but, instead, is conferred by a corporation on some other person for the benefit of the shareholder, or as a benefit that the shareholder desired to have conferred on the other person, in circumstances where the provisions of subsection 56(2) or 246(1) would apply to include a benefit amount in the income of the shareholder. You have requested our view whether the benefit amount in those cases would include the taxes referred to in subsection 15(1.3).

Our Comments

Where subsection 56(2) applies, it requires that a payment or transfer of property "shall be included in computing the taxpayer's income to the extent that it would be if the payment or transfer had been made to the taxpayer".

In a similar manner, where subsection 246(1) applies, it requires that "the amount of the benefit shall, to the extent that it ... would be included in the taxpayer's income if the amount of the benefit were a payment made directly by the person to the taxpayer ... be included in computing the taxpayer's income ..."

Thus, both of these subsections require a determination of the amount that would be included in the taxpayer's income if the taxpayer had received the benefit directly. It is our view that if either of these subsections applies to require a shareholder of a corporation to include an amount in his/her income because the benefit amount would have been included in the shareholder's income pursuant to subsection 15(1) had the benefit been conferred on the shareholder directly, if the benefit amount takes into account the cost to a person of purchasing a property or service or an amount payable by a person for the purpose of leasing property, the benefit amount will include any taxes described in subsection 15(1.3).

Even though subsection 15(1.3) appears to be limited to amounts included in income under section 15, where the amount referred to in subsection 56(2) or 246(1) requires a determination of the benefit amount in subsection 15(1), the amount determined for the purposes of subsection 15(1) will necessarily include the taxes referred to in subsection 15(1.3). A similar situation was considered by the Federal Court of Appeal in The Queen v. Erling Marvin Olsen, 2002 DTC 6770. In that case, the definition of "control" in subsection 186(2) was relied upon when, for the purposes of subsection 84.1(1), it was necessary to determine if 2 corporations were connected within the meaning assigned by subsection 186(4). The court stated:

[10] Subsection 186(4) provides that a payer corporation is "connected" with a particular corporation "For purpose of this Part" (i.e., Part IV), when the former is "controlled" by the latter. Under Part IV, the term "control" can only have the meaning assigned to it by subsection 186(2). It follows therefore that this is the meaning which must be given to the word "controlled" in subsection 186(4).

[11] Subsection 84.1(1) incorporates the word connected "within the meaning assigned by subsection 186(4)" .... As the meaning of the word "controlled" under subsection 186(4) ... is only capable of being given the meaning attributed to it under part IV, this must be the meaning which subsection 84.1(1) incorporates.

We trust that our comments will be of assistance.

For Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch