Corporate/Separate Personality


Meredith v. Canada (Attorney General), 2002 DTC 7190, 2002 FCA 258

shareholder and corporation were separate

The trial judge had lifted the corporate veil by treating the taxpayer and a corporation of which the taxpayer was the sole shareholder and director, as one and the same in denying the taxpayer a credit under s. 122.3(1). Malone J.A. stated (at p. 7192):

"Lifting the corporate veil is contrary to the long-established principles of corporate law. Absent an allegation that the corporation constitutes a 'sham' or a vehicle for wrongdoing on the part of putative shareholders, or statutory authorization to do so, a court must respect the legal relationships created by a taxpayer ... . A court cannot re-characterize the bona fide relationships on the basis of what it deems to be the economic realities underlying those relationships ... ."

See Also

Fourney v. The Queen, 2012 DTC 1019 [at 2575], 2011 TCC 520

Seeking to protect herself from being sued by her brother, the taxpayer transferred title to all her real properties for no consideration to corporations under her majority control. She reported rental and business income and expenses from these properties while her accountant did the same in the corporations' returns. The Minister's reassessment included the inclusion in her income of a taxable capital gain on a disposition of the properties to the corporations.

Hogan J. noted (para. 30) that "a transfer of property for no consideration generally results in a rebuttable presumption of a resulting trust" . This presumption was further supported by the fact that, following the transfer, the taxpayer continued to operate the business properties in a personal capacity. All invoices for repairs and renovations, and all rent cheques were addressed to her personally, and all income and expenses went into or came from her personal bank accounts; and the corporations held themselves out to third parties as the property owners only in limited circumstances.

Hogan J. found that the resulting trust was a bare trust, in which the corporations could reasonably be considered to have acted as mere agents for the taxpayer. The trust was therefore not a "trust" for the purposes of the Act, pursuant to s. 104(1). Furthermore, the transfer was not a "disposition" under s. 248(1) because, as per paragraph (e), the taxpayer retained beneficial ownership. The income and expenses on the properties therefore were those of the taxpayer, and she did not realize a capital gain on the transfer.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Agency 191
Tax Topics - General Concepts - Ownership presumption of resulting trust where property transfer for no consideration 257
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(1) bare trust arising on creditor-proofing transfer 257
Tax Topics - Income Tax Act - Section 163 - Subsection 163(2) line codes in electronic filings were incomprehensible to taxpayer 300
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Disposition rebuttable presumption of resulting trust on transfer for no consideration 257

Martel v. The Queen, 2003 DTC 1187 (TCC)

In rejecting a submission that, in determining whether a corporation was carrying on an active business, account could be taken of the activities of a related corporation, Tardif T.C.J. stated (at p. 1190) that:

"This argument has no basis in law and is completely contrary to the very essence of a corporation, which is an independent legal entity."

K.J. Beamish Construction Co. Ltd. v. MNR, 90 DTC 1584, [1990] 2 CTC 2199 (TCC)

shareholder has no interest in corporation's assets

The taxpayer, which was a shareholder of a private corporation engaged in land development and to which it made advances, was unable to deduct lossses sustained on its advances on income account. It relied on the activities of the corporation being on income account.

In light of the "fundamental principle laid down in Salomon v. A. Salomon and Company Limited, [1897] A.C. 22 that a corporation is regarded in law as a legal entity with the personality of its own and it is quite distinct from its shareholders" (p. 1592), Christie A.C.J. found (at p. 1596) "that a person who acquires a share in a corporation does not thereby acquire an interest in land that is an asset of the corporation", and accordingly refused to extend the principle in the Fraser case to find that loans made to a real estate company by its shareholder had the same character as if they had been incurred in connection with the business of that company.


Perry, "Capitalization and Asset Acquisitions for New Private Corporations", 1993 Conference Report, C. 22

Discussion (at pp. 7-11) of the corporate veil.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Personality 8

separate existence

See Also

Barnwell v. The Queen, 2015 DTC 1115 [at 724], 2015 TCC 98 (Informal Procedure), aff'd 2016 FCA 150

separate personality of Ontario corporation

Before finding that a loan made by the taxpayer to an individual, who was the sole director and shareholder of a business corporation ("Whitesand"), was, both in form and substance, a personal loan rather than a loan to Whitesand Owen J. found (at para. 58, and consistently with s. 15 of the Business Corporations Act (Ontario) and Salomon v. Salomon & Co., [1897] A.C. 22 (HL)):

[A]n Ontario corporation is a legal entity that has a legal personality separate and apart from its directors, officers and shareholders.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 39 - Subsection 39(1) - Paragraph 39(1)(c) loan made to the principal of a business corporation could not be construed as a corporate loan 79