CRA publishes an official translation of a previous interpretation on the expansion of directed benefits under s. 15(1.4)(c)

S. 15(1.4)(c) assimilates a benefit conferred on an individual related to a shareholder to s. 15 benefits conferred on that shareholder. In a situation where there was personal use of a corporate aircraft by the individual shareholder (Mr. A) of the "grandfather" (indirect parent) of the corporate owner of the aircraft and by Mr. A’s father (Mr. B), CRA (surprisingly) indicated that there would be no taxable benefit from such use by the father for the years under review before the effective date of s. 15(1.4)(c) – but thereafter, the value of the benefits enjoyed by the father were taxable to his son (Mr. A). CRA’s analysis was that, under Massicotte (a.k.a. Pub Création), the conferral of a benefit by a corporation on the shareholder of its parent (or, in this case, of the grandparent) constitutes an indirect benefit to the shareholder of the grandparent which is a taxable benefit to him (Mr. A) under s. 246(1), given that a benefit conferred on him directly by the grandparent corporation would have been taxable to him under s. 15(1). S. 15(1.4)(c) would then apply to add the benefit conferred on Mr. A’s father to the benefits which were taxable to Mr. A under s. 246(1).

As for the valuation of those benefits, CRA concluded after reviewing four Court of Appeal decisions (Youngman, Fingold, Schroter and Anthony) that the valuation of the benefits should be based on their fair market value (corresponding "to the price the user would have paid an independent corporation for a similar benefit") rather than their cost – although, here, the denied operating expenses and CCA of the corporate owner "can be used to establish the value of the benefit conferred on Mr. A and Mr. B., to the extent that it can be demonstrated that this value approximates the FMV of the benefit received."

CRA has now taken the trouble to provide an official translation of this interpretation, thereby signifying that it considers it to be important. This is indicated by the “2” before the I7 in the assigned number.

Neal Armstrong. Summary of 2014-0527842I7 under s. 246(1)(c), s. 13(7)(c) and s. 15(1.4)(c).