Charania - Tax Court of Canada applies unintended and unarticulated price adjustment clause

An individual shareholder of a corporation thought that he was the beneficial owner of his home, but everyone else, including his accountants (and ultimately the Tax Court) considered that it was beneficially owned by the corporation. Immediately before his sale of the home at a gain, it was transferred to him by the corporation, with the excess of its book value over the outstanding mortgage amount being booked as a shareholder advance to him.

In reversing a shareholder benefit assessment of the taxpayer equal to the excess of the property’s fair market value over its book value (and stating an "understanding" that the shareholder loan amount would be increased by this difference), VA Miller J found that the failure to debit the shareholder loan account with the higher FMV-based amount was an obvious error (which the taxpayer did not sanction because he was unaware of it) and that there was no intention to confer a benefit.

This goes beyond CRA’s policies (in S4-F3-C1) on price adjustment clauses given that no agreement to transfer at FMV was documented at the time and, in fact, one of the parties was not even aware that he was purchasing the property from the other.

Neal Armstrong. Summary of Charania v. The Queen, 2015 TCC 80, under s. 15(1).