Section 173

Subsection 173(1) - Employee and Shareholder Benefits

See Also

Pelletier v. Agence du revenu du Québec, 2021 QCCQ 670 (Court of Quebec)

the net tax addition for the shareholder benefit from personal use of a corporate helicopter should reflect GAAP depreciation rather than (ITA) depreciable-property class rates

A corporate helicopter was used partly for the personal use of the individual shareholder (Pelletier). The ARQ (contrary to the CRA approach) assessed to increase the amount of the shareholder benefit includible in the income of Pelletier and to assess the corporation (“Héli”) under QSTA s. 290 (the equivalent of ETA s. 173(1)) on the basis that the value of the depreciation of the helicopter should be increased from the 4% straight-line rate used in preparing it financial statements to the 25% declining-balance rate applicable to Class 9 property (such as helicopters).

Dortélus JCQ noted that the appropriate test was that of “what would the shareholder have paid to receive the benefit had he not been a shareholder” (para. 119, TaxInterpretations translation). He accepted that the 4% rate accorded with generally-accepted accounting principles, and found (at para. 120) that the taxpayers had established that the 4% rate was “more in line” with this test.

He also found (at para. 133) that various trips (treated by the ARQ as having been personal) had been established by the taxpayers to be “necessary and incidental to trips that were solely commercial,” including some helicopter-ferrying to close down a fishing camp that had been used for client entertainment, and the helicopter’s use in connection with training a pilot.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 15 - Subsection 15(1) the shareholder benefit from personal use of a corporate aircraft should reflect GAAP depreciation rather than CCA (25% d.b.) rates 251

Administrative Policy

CBAO National Commodity Tax, Customs and Trade Section – 2014 GST/HST Questions for Revenue Canada, Q. 23

no ITC on taxable resale of personal property where ITC was denied under s. 170
available with membership password at

A registrant acquires personal property strictly for the personal use, free of charge, of an employee or a shareholder. Under s. 170, the registrant may not claim an input tax credit for the GST/HST paid on the purchase, and under s. 173(1)(c) the use of the registrant in so supplying the property to the employee/shareholder is deemed to be use of the property goods in the course of a commercial activity – so that a resale of the goods is taxable under s. 200 or 141.1. On the resale, is the registrant entitled to claim an input tax credit for the GST/HST paid on the original purchase, and if so, on what basis? CRA stated:

]E]ven though paragraph 173(1)(c) deems the property to be for use in the registrant's commercial activities, the registrant would not be entitled to claim an ITC for the GST/HST payable or paid on the original purchase if subsection 170(1) has denied the registrant an ITC in respect of that property.

When the personal property is subsequently sold, and the use of the property in commercial activities (including the deemed use in paragraph 173(1)(c)) results in the sale being a taxable supply under the provisions of sections 141.1 or 200, there is no provision in the ETA that allows an ITC as a result of that taxable supply, unless the personal property is a passenger vehicle.

GST/HST Memorandum 9.1 Taxable Benefits (Other than Automobile Benefits) November 2011


4. Generally, section 173 applies when a registrant makes a supply of property or a service to an individual who is an employee or a shareholder, or a person related to the employee or shareholder, which gives rise to a taxable benefit under certain sections of the ITA. Section 173 also applies in the case of automobiles where the supply would have given rise to a taxable benefit if the registrant had not been reimbursed. The effect of section 173 is that, subject to certain exceptions..., the registrant must include tax deemed collectible and collected on the total value of the taxable benefit and any reimbursements (in the case of automobile benefits) in the registrant's net tax calculation. In essence, a registrant who confers a taxable benefit for property or a service should remit the GST/HST that would have been payable on the property or service had the employee or shareholder purchased it from the registrant.

28 August 1996 Interpretation File No. 11650

s. 173 inapplicable to s. 12(1)(y) benefits conferred by partnership

Where a partner has the use of a partnership-owned automobile, the partner is taxed on a standby charge as business income under ITA s. 12(1)(y). As this is not a s. 6(1)(e) or 15(1) benefit, s. 173 does not require that a registrant partnership to remit GST on the value of this benefit. Why is this so? CRA responded:

In circumstances where a partnership-owned passenger vehicle is used personally by a member of the partnership (or an employee of a member of the partnership), the partnership is not entitled to an input tax credit on the acquisition or importation of the passenger vehicle by virtue of subsection 202(2) of the ETA since that use is considered not to be use in the partnership's commercial activity. Accordingly, subsection 173(1) of the ETA will not apply to recapture any input tax credit previously claimed by the partnership on the personal use portion required to be assessed to the member of the partnership under paragraph 12(1)(y) of the ITA.

Paragraph 173(1)(d)

Paragraph 173(1)(d)

Administrative Policy

21 December 2017 Interpretation 164739

no denial under s. 170 where employer acquisition "benefited" from s. 156 election: imputed s. 173 tax even though no ITC

Corp A purchases motor vehicles that it subsequently leases to Corp B, which in the mooted case, is used by the employees exclusively for personal use, giving rise to taxable benefits under ITA s. 6(1)(a). Corps A and B, which are closely related, elect under s. 156(2). Having regard to s. 173(1)(d)(i) providing that Corp B does not recognize an imputed supply under s. 173(1)(d)where it would not be entitled to an input tax credit respecting the lease payments to Corp A (which would be the case, absent the s. 156 election), is this affected by such election? CRA responded:

[S]ince no tax was payable by Corp B in respect of the supply, there would not be an ITC to calculate under subsection 169(1). Accordingly, section 170 would not be considered to have prevented Corp B from claiming an ITC in respect of its lease of the vehicle that has been provided for the exclusive personal use and enjoyment of one of its employees.

Therefore … subparagraph 173(1)(d)(i) would not apply … .

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 156 - Subsection 156(2) making the ETA nil consideration election can have punitive results respecting GST/HST on related employee benefits 277