Subsection 15(1)


Babich v. Canada, 2013 DTC 5010 [at 5556], 2012 FCA 276, aff'g 2010 TCC 352

shareholder rather than employee benefit

The taxpayer ("Babich") was the sole shareholder of a corporation ("Able") which provided a car exclusively for use (both personal and business) by Babich's mother and by his father, who was the corporation's general manager. V.A. Miller J. stated (at TCC para 22):

I conclude from all of the evidence that a benefit was conferred on Babich. The Automobile was owned by Able and all expenses were paid by Able. Babich was the sole shareholder of Able and he allowed his parents to have exclusive use of the Automobile for both personal and business purposes. According to subsection 15(5), the value of the benefit to be included in a shareholder's income with respect to an automobile relates to an automobile made available to the shareholder or to a person related to the shareholder.

Sharlow J.A. dismissed the taxpayer's contention that the benefit should have been taxed in the hands of his parents pursuant to s. 6, rather than in his hands under s. 15(1). The Court was satisfied that the trial judge's decision was "correct in law and is consistent with the evidence presented to her" (FCA para. 11).

The Queen v. Robinson, 2000 DTC 6176 (FCTD)

inadvertent shareholder balance

The inadvertent crediting by a company's accountants of an amount to the shareholder loan account owing to the taxpayer rather than to the sales account did not give rise to a shareholder benefit to the taxpayer given that he never drew on this balance and that, at the time of signing his personal return and the time of signing the corporation's tax return, the circumstances were not such that he ought to have known of this error.

Canada v. Chopp, 98 DTC 6014 (FCA)

no intent required

In finding that there was a shareholder benefit conferred when the taxpayer's daughter, while an inexperienced bookkeeper, used corporate funds to pay part of the purchase price for a new home, Denault J.A. quoted (at p. 6015) with approval the following statement in the Tax Court below:

"I think a benefit may be conferred within the meaning of subsection 15(1) without any intent or actual knowledge on the part of the shareholder or the corporation if the circumstances are such that the shareholder or corporation ought to have known that a benefit was conferred and did nothing to reverse the benefit if it was not intended ... . If there is a genuine bookkeeping error with respect to a particular amount and that amount is truly significant ... a court may conclude that the error should have been caught ...".

The Queen v. Fingold, 97 DTC 5449 (FCA)

benefit calculated re notional return on cost

A holding and management company owned by the taxpayer and his brother conferred a taxable benefit on the taxpayer when it purchased a Florida condominium (in the building where the taxpayer's mother had an apartment) at a cost of Cdn. $1.8 million, renovated and upgraded the condominium at a further cost of Cdn. $2.2 million and then provided the condominium free of charge (with the exception of the payment of some operating expenses) to the taxpayer and his family, who used it for winter vacations and for business entertaining on numerous occasions. There was no error in the assumption of the Minister that the "equity rate of return" method should be used to compute the shareholder benefit, i.e., calculating what the company could have earned on the money it had used in acquiring and renovating the condominium.

Hrga v. The Queen, 97 DTC 5165 (FCTD)

implicit corporate indemnity negatived benefit

The taxpayer, who was the sole beneficial shareholder of a corporation ("Interconserv"), guaranteed a debenture of a partially-owned subsidiary of Interconserv ("Concept"). Jerome A.C.J. found that there was an unwritten agreement by Interconserv to indemnify Hrga if he should be required to honour that guarantee. Accordingly, when the taxpayer utilized assets of Interconserv to satisfy a demand under the guarantee, there was no conferral of a benefit on him by Interconserv.

Toma v. The Queen, 95 DTC 5356 (FCTD)

acting in corporate rather than personal capacity

When one of the two corporations owned by the taxpayer ("Meridian Green") fell into financial difficulty, the taxpayer signed a personal promissory note for $110,000 in favour of a customer of the second corporation ("Meridian Seed") and agreed that a like amount of produce of Meridian Seed was pre-sold to the customer. In finding that there had been no appropriation of $110,000 by Meridian Seed to the taxpayer, Jerome A.C.J. noted that when the taxpayer received the $110,000 from the customer, he did not keep it for his personal use but rather used the money to rescue Meridian Grain; and further noted (at p. 5358) that "at all times, he was acting as he did for several years, as the operating mind of both corporations rather than in his personal capacity".

Penny v. The Queen, 95 DTC 5083 (FCTD)

appropriation includes de facto taking for which no legal entitlement

An account receivable owing to a private corporation controlled by the taxpayer was found to have been appropriated by him given the receipt (and reporting of interest) by him on the receivable and the subsequent receipt of payment by him of the receivable. Although the receivable could not have been realized at the time of the appropriation (due to the financial position of the payor), Simpson J. found that in the absence of evidence of the actual value of the receivable, its value must be taken to be its face value. In response to a submission that the taxpayer could not have sued personally for payment of the receivable in view of the commission agreement which made it payable to the corporation, Simpson J. noted that s. 15 referred to an appropriation "in any manner" and stated (at p. 5086) that "to me, this language encompasses a de facto taking". He also noted that the word "appropriate" in s. 15(1)(b) "conveys a notion of taking but does not necessarily require a formal documented taking".

Words and Phrases

Cartwright v. The Queen, 94 DTC 6677 (FCTD)

benefit based on FMV comparable rather than cost

The shareholder benefit received by the taxpayer as a result of a seasonal residence of the corporation being made available for use by him and his family was calculated by Rouleau J. to be $1,000 a week (or $12,000 for the summer season), being what the plaintiff would have paid had he and his family vacationed in an exclusive resort for a summer season of 12 weeks, rather than the higher figure calculated by the Minister on the basis of applying the prescribed rate to the relevant capital costs. No benefit was applicable to a subsequent summer in which no use was made of the residence.

Winter v. The Queen, 90 DTC 6681 (FCA)

s. 56(2) applied to taxpayer rather than 15(1) to son-in-law as de minimis shareholder

Where an individual had a company controlled by him sell shares of another corporation to his son-in-law for a sale price that was less than their fair market value, s. 56(2) applied to the individual, rather than s. 15(1) applying to his son-in-law. Although the son-in-law held one share of the vendor corporation representing 0.01% of its total issued share capital, the son-in-law entered into the transaction qua son-in-law rather than qua shareholder.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 245 - Subsection 245(2) specific provisions applied before GAAR 96
Tax Topics - Income Tax Act - Section 56 - Subsection 56(2) 163

Youngman v. The Queen, 90 DTC 6322 (FCA)

benefit reduced by interest-free loan made by shareholder

A corporation owned by the taxpayer and his family built a luxurious home in 1978 at a cost of $395,549 on land which originally had been acquired by it for a housing development which the municipal authorities had failed to approve. The taxpayer was reassessed on the basis that he had received a benefit computed by taking a 9% rate of return on the corporation's equity in the house (i.e., the cost of construction minus the amount of a third-party mortgage), adding thereto the mortgage interest and other expenses paid by the corporation, and subtracting the monthly rent of $1,100 paid by the taxpayer.

Pratte, J.A. accepted this computation of the benefit, with the proviso that it should be reduced by an amount of notional interest on an interest-free loan which the taxpayer had made to the corporation in order to help fund the construction, given that if the taxpayer had been dealing with a corporation of which he was not a shareholder, this interest-free loan would have been taken into account in determining the amount of the rent. Although the value of the benefit which was received, rather than the cost of the benefit to the corporation was relevant test, "in determining the value of benefit, one may take its cost into consideration" (p. 6325). Here, the high cost of the home was attributable to the special requirements of the taxpayer, and under such circumstances a corporation of which the taxpayer was not a shareholder "would have then charged a rent sufficient to produce a decent return on its investment" (p. 6326).

Locations of other summaries Wordcount
Tax Topics - General Concepts - Onus 83

Vine Estate v. The Queen, 89 DTC 5528 (FCTD)

shareholder benefit where benefit on sister corp

An incorporated car dealership (Carl Vine Ltd.) which was owned by an individual (Mr. Vine) and his wife contributed monies to fund the operating losses of a Florida company (W.J.V. Inc.) which was owned by Mr. Vine. Jerome, A.C.J. held:

"[T]he sums advanced to W.J.V. Inc. by Carl Vine Ltd. must be considered as income in the hands of Mr. Vine, as "funds of a corporation appropriated for the benefit of a shareholder" (to paraphrase s. 15(1)(b) or "a payment made pursuant to the direction of a taxpayer to some other person for the benefit of the taxpayer as a benefit the taxpayer desired to have conferred on the other party" (to paraphrase s. 56(2)). Either section has the effect of adding the advances from Carl Vine Ltd. to W.J.V. Inc. as income taxable in the hands of Mr. Vine. This is so, no matter how the monies appeared in the books of either company. ... As for the ultimate decrease in value suffered by Mr. Vine, it is irrelevant, as noted in Boardman and in Guilder News. ..."

Friedland v. The Queen, 89 DTC 5341 (FCTD)

payment of legals protected corporate business

An individual ("Friedland") carried on his business of economics consulting through a corporation ("SFRA"). When dissatisfied clients brought action against SFRA and Friedland, and the OSC charged Friedland with acting as an unlicensed securities adviser, SFRA incorporated a subsidiary ("Comar") which continued carrying on the consulting business.

The payment by Comar of all the related legal expenses did not give rise to shareholder benefits. "If all those proceedings had not been defended, or unsuccessfully defended, it is obvious, from a practical business point of view, Professor Friedland's services to clients and potential clients would have been tarnished and diminished. Comar's business would then have been affected."

The payment by Comar of various expenses associated with the use by Friedland of a Rolls and BMW for commuting to work assignments downtown and at York University also did not give rise to a shareholder benefit.

Grohne v. The Queen, 89 DTC 5220 (FCTD)

mere fulfillment of contractual obligation

The taxpayer, along with other promoters of a company, entered into a "standby agreement" whereby they agreed to purchase shares of the company for 25¢ per share to the extent that shares pursuant to a rights offering by the company were not fully subscribed for. At the time the taxpayer acquired shares pursuant to the standby agreement, the market price was well in excess of the 25¢ per share paid by him.

Because, on balance, it appeared that both the corporation and the taxpayer were obligated to issue or subscribe for the shares regardless of their current market value, the honouring of this obligation by the corporation did not entail the conferral of a benefit. "In respecting such a contract and giving the customer-shareholder his due under the contract, the corporation is not conferring on him a benefit or advantage but simply fulfilling its contractual obligations."

Cooper v. The Queen, 88 DTC 6525, [1989] 1 CTC 66 (FCTD)

interest-free loan

With reference to whether an interest-free loan gives rise to a taxable benefit, Rouleau J. stated:

"There is a considerable difference between the situation where the lender himself must go out and borrow funds at a specified rate of interest and then turns around and offers a loan to a shareholder interest free, and the case where the loan comes out of operating capital already held by the lender."

And (at p. 6535):

Any loan which escapes inclusion into income under subsection 15(2) must be understood to have escaped entirely whether interest-free or not, otherwise the purpose of the section is in part defeated."

Locations of other summaries Wordcount
Tax Topics - General Concepts - Illegality income tax consequences attaching to illegal loan 75
Tax Topics - Income Tax Act - 101-110 - Section 105 - Subsection 105(1) interest-free loan recognized as obligation rather than benefit 101

R. v. Century 21 Ramos Realty Inc., 87 DTC 5158, [1987] 1 CTC 340 (Ont.C.A.)

benefit based on actual rather than subjective value

The summary conviction appeal court judge indicated that even if shares received by the accused had a value of only $25, the accused should still have included $25,000 in his return because all the parties concerned, including him, were of the belief that the shares had a value of $25,000. The Court of Appeal held that the belief of the accused was immaterial and it is "only the 'amount or value' of the property appropriated to or for the benefit of the shareholder that must be included in computing the income of the shareholder".

Hall v. The Queen, 86 DTC 6208, [1986] 1 CTC 399 (FCTD)

shareholder benefit not affected by book entry of shareholder

The shareholders of a company ("Quebec") purchased a $453,000 note owing by the company for a purchase price of $250,000, payable in 20 semi-annual instalments of $3,750, with the balance of $175,000 payable at the end of the 10 year period. The payment of one of the $3,750 instalments by Quebec, rather than its shareholders, gave rise to a taxable benefit under s. 15(1), notwithstanding that the payee ("Jersey") applied the amount as a reduction of the amount owing by Quebec on the $453,000 note. "What Jersey did, in its books, with the payment, cannot, to my mind, change the character of the transaction as between Quebec and its shareholders."

Indalex Ltd. v. The Queen, 86 DTC 6039, [1986] 1 CTC 219 (FCTD), aff'd 88 DTC 6053, [1988] 1 CTC 60 (FCA)

A "shareholder" does not include an affiliate that does not hold shares in the corporation.

Words and Phrases

Murphy v. The Queen, 85 DTC 5462, [1985] 2 CTC 248 (FCTD)

A company of which the taxpayer and her husband were the shareholders paid for work that was done on the family residence, which was owned by her in joint tenancy with her husband. Although she did not order the work that was done and had no knowledge of who paid for it, the inclusion of 1/2 of the amount charged to the company in her income was found to be proper.

The Queen v. Houle, 83 DTC 5430, [1983] CTC 406 (FCTD)

It was found that since a yacht had been acquired by a company primarily for business entertaining and promotional purposes rather than for the personal use of its shareholder, the benefit under s. 15(1)(c) was only a prorated portion of the yacht's operating costs, determined by comparing the hours of personal use to the total hours of use.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Tax Avoidance 28

Schlamp v. The Queen, 82 DTC 6274, [1982] CTC 304 (FCTD)

Rent-free accommodation provided by a company to its shareholder with respect to a home constructed by the company was a taxable benefit. $350 per month was added to the taxpayer's income.

The Queen v. Schubert, 80 DTC 6366, [1980] CTC 497 (FCTD)

It was held that the transfer of all the assets of an unincorporated printing-table business by the owner to a company controlled by him entailed the transfer of substantial goodwill. There was one mechanic to whom the conduct of the business could be safely left, and the product of the business was of superior quality and widely known. Payments by the company to the vendor-shareholder of the purchase price represented by a promissory note were not benefits conferred under s. 15(1)(c).

Locations of other summaries Wordcount
Tax Topics - General Concepts - Fair Market Value - Other 34

Berbynuk v. The Queen, 78 DTC 6322, [1978] CTC 448 (FCTD)

A company did not report income generated from the sale of scrap metal. Some of the cash so generated came into the hands of the appellant, who held 1/3 of the company's shares. The cash was used as a slush fund for business purposes, including business promotion.

There was no benefit to her under s. 15(1). There is nothing in the Act "which would authorize the attribution of a corporation's suppressed income to an employee or shareholder simply because it was suppressed income. In order for it to be attributable ... the individual must have either received the money or its value in the form of a benefit or advantage."

Perrault v. The Queen, 78 DTC 6272, [1978] CTC 395 (FCA)

The appellant majority shareholder of a company, who agreed to purchase the shares held in the company by a minority shareholder in consideration of having the company first pay a dividend to the minority shareholder of $350,050, was found to have received a benefit of $350,050 in that the payment of the dividend satisfied his obligation to pay the price of the shares. "It is undeniable that a payment by a corporation, whatever its form, which has the effect of extinguishing a debt or obligation of a shareholder must be considered to be a benefit conferred on him ... The value of what he acquired in consideration of the debt or obligation is really irrelevant".

The Queen v. Ginter, 77 DTC 5274, [1977] CTC 418 (FCA)

no benefit if improvement to be demolished on reversion

A corporation, which was owned by the taxpayer, leased a building from him and made an addition to it. It was found that since it was anticipated that the addition would be removed or demolished at the termination of the tenancy, no benefit had been conferred on the taxpayer.

Steeves v. The Queen, 76 DTC 6269, [1976] CTC 470 (FCTD)

shareholder purchase of debt at substantial discount from face amount

Two individuals who were engaged in the road construction business elsewhere, owned 1/2 the shares of a corporation ("Paving") engaged in that business which was in financial difficulty. The individuals purchased the shares of the other shareholders for $1, exonerated those shareholders from liability for Paving's debts and purchased debts from the other shareholders having a principal amount of $620,633 for $70,000. Amounts paid by Paving in excess of the individuals' $70,000 investment were a taxable benefit under s. 15(1)(c). The individuals knew at the time of acquring the debts that they could make a handsome gain by turning the business around through their own efforts.

The Queen v. Phillips, 76 DTC 6093, [1976] CTC 126 (FCA)

"consulting" agreement obligation arose in year of share sale

In 1964 the taxpayer acquired all the shares of a company from an individual ("Beaupré") for $12,000 and, as part of that arrangement, caused the company to enter into an agreement with Beaupré to pay him $48,000 in instalments, purportedly as consulting fees. Beaupré obtained a court judgment in respect of the failure of the company to pay instalments, and in 1966 the company paid $22,000 to Beaupré for a release of his claims.

The Crown's appeal in respect of the taxpayer's 1966 taxation year was dismissed because the benefit was conferred in 1964 when the company agreed to make the payments. "Such agreement was part of the inducement or consideration for the transfer of his shares by Beaupré to the respondent. If the company had not executed that agreement, the respondent would not have obtained the shares for ... $12,000".

Rosenblat v. The Queen, 75 DTC 5274, [1975] CTC 472 (FCTD)

In June 1967 a company ("Brilund") agreed to issue shares then worth no more than $120,000 to a non-resident shareholder, in consideration of past services rendered by him, but did not issue the shares to him until December, when the shares were worth substantially more. The shares were to be valued for purposes of s. 15 at the date of the contract, and there accordingly was no withholding tax exigible under s. 214(3)(a).

The Queen v. Neudorf, 75 DTC 5213, [1975] CTC 192 (FCTD)

The cost of improvements made by a company to leased building premises owned by its shareholder was included in his income. There was no agreement that the improvements belonged to the company.

The Queen v. Leslie, 75 DTC 5086, [1975] CTC 155 (FCTD)

no asset backing for note - no benefit until paid

In 1959 the taxpayer sold his food storage business having a fair market value of $5,078 to a company of which he was the majority shareholder in consideration of treasury shares having an expressed value of $10,000 and a promissory note in the principal amount of $15,300. No payments were made on the promissory note until 1969. Since the company at the time of issuance of the promissory note did not have "sufficient assets to create a good or sound expectation of the debt actually being paid" no benefit was conferred until the time of payment.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 85 - Subsection 85(1) 95

Huron Steel Fabricators (London) Ltd. v. M.N.R., 75 DTC 5006, [1974] CTC 889 (FCTD)

The Crown's theory was that an arrangement, whereunder (a) the majority shareholder ("Fratschko") of a private company ("Huron") acquired the shares in Huron held by a minority shareholder ("Peckham") as the result of the almost immediate default of Peckham on a loan to him by Fratschko, and (b) a contract whereunder a company ("Pelon") owned by Peckham agreed to perform services for Huron, should be regarded as a sale of shares by Fratschko to Peckham for consideration funded by the payments by Huron to Pelon under the service contract. However, the evidence established that Pelon had provided substantial services to Huron, and that the amount of the loan for which Peckham's shares were security approximated their fair market value. No shareholder benefit was conferred on Fratschko.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Fair Market Value - Shares 32

Angle v. M.N.R., 74 DTC 6278, [1975] 2 S.C.R. 248

no intent to honour obligation

"A tax assessment in respect of a benefit or advantage received is not inconsistent with an obligation to pay for the benefit or advantage where, for example, there is no apparent intention to honour the obligation. The decision that a taxable benefit has been received can stand in an appropriate case with an alleged obligation to pay for that benefit."

Locations of other summaries Wordcount
Tax Topics - General Concepts - Res Judicata 158

Byke Estate v. The Queen, 74 DTC 6585, [1974] CTC 763 (FCTD)

Following the acquisition of the shares of a company by the taxpayers for consideration that included a mortgage given by the company to the vendors, the company paid principal and interest on amounts borrowed by the taxpayers to acquire its shares, and also made payments of principal and interest under the mortgage. On both counts, the company conferred a benefit on the taxpayer. "When, periodically, the company carried out the terms of its commitment the benefit was quantified and the company's funds appropriated for their benefit." It was noted that it was irrelevant whether or not the mortgage was illegal.

Bernstein v. MNR, 74 DTC 6041, [1974] CTC 4 (FCTD), aff'd 77 DTC 5187, [1977] CTC 328 (FCA)

no reorganization of corporation

Pillsbury Holdings did not apply to a sale by a corporation ("Highland") to its individual shareholders of shares of a subsidiary ("Berkam") worth $100,000 for cash consideration of $200, because in the present case there was a clear invoking of the provisions of sections 15(1)(c) and 245(2). Walsh, J. stated that "there was no reorganization whatsoever of Highland's capital structure or business, the reorganization having taken place with respect to Berkam".

Kennedy v. MNR, 73 DTC 5359, [1973] CTC 437 (FCA)

benefit in year of note issuance/tenant improvement benefit based on PV of reversion boost

The taxpayer's company acquired a property at a net cost of $159,000 and converted it for use in a car dealership at a cost of $185,000, so that its total cost was $359,000. In 1965 the taxpayer acquired the property from the company in consideration for the assumption of $311,000 of mortgages, and was issued a promissory note of the company for $53,000, so that his net cost was $259,000, i.e., $85,000 less than the company's cost. He then leased the premises back to the company on a 4 1/2 year lease. In 1966 the company expended $42,000 in making improvements.

The Minister assessed a shareholder benefit of $85,000 for 1965, and of $42,000 for 1966.

Respecting the 1965 assessment, the Trial Court's finding that the value of the property was at least $359,000 was appropriate as "it is to be assumed, in the absence of evidence to the contrary, that an experienced business man such as the appellant does not make business expenditures that are not calculated to produce results at least equal in value to the amounts expended" (pp. 5362-5363). In rejecting an argument that the promissory note did not give rise to a benefit in the year of issuance, Jackett CJ stated (at p. 5361):

[W]hen a debt is created from a company to a shareholder for no consideration, or inadequate consideration, a benefit is conferred. ...On the other hand, when a debt is paid, assuming it was well secured, no benefit is conferred because the creditor has merely received that to which he is entitled.

Respecting the 1966 assessment, the value of the benefit was not simply the amont of the expenditure but, rather "the present value, as of the time that the 1966 improvement was completed, of the respective amounts that [the taxpayer] would have been able to add to the rental payments covered by the lease but could not add because of the existence of the lease" (p. 5363).

MNR v. Bisson, 72 DTC 6374 (FCTD)

The taxpayer, who was the general manager and one of the two principal shareholders of a bus company ("Hull City Transport") agreed, in settlement of a dispute with the other principal shareholder ("Thorn"), to purchase the beneficial ownership of the shares of Thorn in consideration for annual payments of $3,000 for four years, and $5,000 per year thereafter until the sum of $60,000 had been fully paid. The previous day, the board of directors of Hull City Transport, resolved to pay Thorn the same sums directly.

Pratte J. rejected the taxpayer's submission that the shares purchased by him from Thorn were worthless, that the purchase agreement "was only a fictitious deed which concealed the real nature of the contract" (p. 6379) and that the taxpayer, in reality was under this agreement acting as agent of Hull City Transport in order for it to pay salary to Thorn (who had been President up to that time on a salary of $3,000 per year) . Pratte J. found that Thorn had undertaken no obligations to Hull City Transport (although the company directors hoped that he would not interfere with their franchise with the City being renewed) and found that there was a taxable shareholder benefit to the taxpayer under s. 16 of the pre-1972 Act resulting from the payment of the agreed-to sums by Hull City Transport to Thorn.

Guilder News Co. (1963) Ltd. v. MNR, 73 DTC 5048, [1973] CTC 1 (FCA)

restoration of previous year's detriment was benefit

The sale in 1964 of shares by a corporation to its sole shareholder at an undervalue gave rise to a benefit to the shareholder notwithstanding that the shares had been purchased at the same undervalue by the corporation from the shareholder two years earlier. "If it had not been for the 1964 resale, the individual would have continued in the relatively impoverished state that resulted from the 1962 sale. As a result of the 1964 resale he was restored to his relatively affluent state at the expense of the company and ... the company thereby conferred a benefit on him." Under the jurisprudence, it was irrelevant that "when an individual benefits a company whose stock is all owned by him or when such a company benefits the individual, the individual's overall net assets may well have neither increased nor diminished ... ." (pp. 5050-5051)

A price adjustment clause did not negate (although it arguably reduced) the amount of the benefit, given that there was no bona fide attempt to estimate a fair market value sale price. "If, in fact, a company simply sold property to its sole shareholder on expressed terms that the price payable was an amount equal to fair market value and provided a fair manner to determine such value, I would agree ... that there could not, as a matter of law, be a benefit arising out of the sale."

MNR v. Pillsbury Holdings Ltd., 64 DTC 5184 (Ex Ct)

no "conferral" if corporation is advancing its business

In 1953 two subsidiaries of the taxpayer waived the interest that was coming due on two loans they had made to the taxpayer a year previously, and a year later all the further interest was waived in connection with the repayment by the taxpayer of a portion of the principal in full satisfaction of the loans.

Cattanach allowed the taxpayer's appeal against an assessment under s. 8(1)(c) of the pre-1972 Act given that the Minister had not assumed, in making the assessment, that such waivers were an arrangement or device adopted by the corporation to confer a benefit or advantage on the taxpayer as shareholder, nor had the Minister established such an arrangement on the evidence. Cattanach J. stated (at p. 5187):

"The word 'confer' means 'grant' or 'bestow'. Even where a corporation has resolved formerly to give a special privilege or status to the shareholders, it is a question of fact whether the corporation's purpose was to confer a benefit or advantage on the shareholders or some purpose having to do with the corporation's business such as inducing the shareholders to patronize the corporation."

Words and Phrases

See Also

Wise v. The Queen, 2019 TCC 196

no immediate taxable benefit to a landlord-shareholder from improvements made to the leased building by the tenant-corporation

In September 15, 2010, the taxpayer leased a building to a corporation (“VWM”) of which she and her son were shareholders pursuant to a five-year lease (the “Lease”) with a five-year renewal option. VWM as lessee then paid for substantial renovations to the building, which it treated as an addition to its Class 13 leasehold improvements class of depreciable property. An appraisal obtained for mortgage financing purposes in March 2012 showed that the value of the property increased by only a fraction of the cost of the renovations. The Minister reassessed the taxpayer in her 2011 and 2012 taxation years for the full cost of the renovations made in those years.

Smith J referred (at para. 41) to the principle in Kennedy that “Where a tenant improves the leased premises, the extent to which, if at all, the improvement confers a benefit on the landlord will depend on the extent to which the improvement increases the value of the reversionary interest,” and then stated (at paras 57, 61):

The Respondent argues that the monthly lease payments were not increased to reflect the value of the Renovation Expenses. I am not convinced that this is determinative of the issue since the oral testimony established that the basic rent agreed to at the commencement of the lease period reflected commercial rates for the building taken “as is”. The Minister appears to have agreed to this. …

It is neither unusual nor surprising that a taxpayer would incur substantial costs in the renovation of a heritage building. …

He then concluded (at paras. 64 and 66) in allowing the appeal:

[D]espite the use of the words “at any time” in subsection 15(1), the Court must conclude that the residual value of the leasehold improvements cannot be quantified until such time as they revert back to the Taxpayer. If the Minister felt otherwise, it was incumbent on it to produce evidence to the contrary, possibly in the form of an expert report.

... [T]he residual value of her reversionary interest will have be to evaluated in due course, assuming WVM eventually decides to vacate the premises.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Effective Date subsequent year’s transactions following a s. 15(1) assessment had no retrospective effect 205

Kyard Capital 2007 Inc. v. Agence du revenu du Québec, 2019 QCCQ 1617

no shareholder benefit in paying legal fees of individual shareholder defending against suit (that threatened corporation's business) brought by ex-spouse

The individual taxpayer (“Fontaine”) was the president and majority shareholder of a corporation (“Kyard”) that earned fees from the provision of accounting and administration services to a single client (being a group of companies owned by a family who had come to Canada from Hong Kong).

The ARQ assessed Fontaine under s. 111 of the Taxation Act (equivalent to ITA s. 15(1) to include in his income the amount of the fees of a legal firm for $25,477 that had been paid by Kyard in defending an action that had been brought by Fontaine’s ex-spouse. The ARQ considered that these fees, the accounts for which were in the name of Fontaine although addressed to the Kyard office, were occasioned by his divorce.

After noting that the description of the legal services provided had not been revealed to the ARQ on the grounds of privilege, Chalilfour JCQ stated (at paras. 133-135, TaxInterpretations translation):

Not waiving professional privilege could certainly render the reversing of the presumption of validity of an assessment … more difficult.

That said, the issue in question should be addressed without the decision of the plaintiffs to not waive professional privilege being fatal.

Otherwise taxpayers would be required to waive professional privilege.

She went on to accept Fontaine’s testimony that he had used another law firm in connection with his divorce, and that the action (brought by her as a former supplier to the Kyard business) had been defended as a threat to Kyard. Accordingly, Fontaine had not received a taxable benefit.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) payment of professional dues was benefit 140
Tax Topics - Income Tax Act - Section 232 - Subsection 232(1) - Solicitor-Client Privilege unnecessary to waive privilege in order to substantiate the nature of legal services provided 133

Mikhail v. The Queen, 2019 TCC 49 (Informal Procedure)

taxpayers could resile from their admission that they received funds from their corporation

A corporation which carried on a pharmacy business paid fees to one of its shareholders for his services as pharmacist and manager and wages to the other shareholder (Ms. Mikhail), who worked part-time on back office functions. The corporation received “In-Kind Rebates” from generic pharmaceutical drug manufacturers in the form of traveller’s cheques, gift cards and prepaid credit cards. Neither the Corporation nor the shareholders included such rebates in their income.

Following the receipt by the Corporation of a letter from CRA stating that it understood that the Corporation had received rebates and stating that these were business income, the two individuals filed amendments to their tax returns for 2010 and 2011 (Mr. Mikhail) and 2012 and 2013 (Ms. Mikhail) in which the individual added 100% of the Corporation’s unreported Rebates to his or her income for the indicated years, and the Minister reassessed accordingly. However, when they realized that the Minister was also reassessing to include the same amounts in the Corporation’s income, they and the Corporation objected to the reassessments.

After quoting (at para. 7) Chopp for the proposition that “a benefit taxed under subsection 15(1) will usually result in some form of double taxation because the shareholder will be taxed on an amount which has not been deducted in computing the income of the corporation,” and noting (at para. 10) that Mr. Mikhail “could not tie a particular purchase for the pharmacy to a gift card or prepaid credit card,” thereby making it difficult to satisfy CRA that the rebates had been used by the Corporation to purchase supplies for use in its business, Monaghan J found (at paras 25 and 26):

… I am satisfied on a balance of probabilities that the In-Kind Rebates were used to purchase items for the Corporation and its pharmacy and that the Mikhails’ decision to include the unreported Rebates as income personally was motivated by the desire to resolve the issue in a way that made it easy for the CRA to accept. … [T]he In-Kind Rebates were not deposited in his and his wife’s personal accounts, but rather had been included in their personal income tax returns as income to make it easy for the CRA to get its taxes and allow him to move on.

… I conclude that the unreported In-Kind Rebates were not received or otherwise enjoyed by the Mikhails personally and accordingly their appeals should be allowed.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) - Paragraph 152(4)(a) - Subparagraph 152(4)(a)(i) failure to properly account for near-cash rebates was neglect under s. 152(4)(a)(i) 148

Laliberté v. The Queen, 2018 TCC 186

business benefits from sending shareholder into space were secondary

The taxpayer, who was the founder and controlling shareholder of Cirque du Soleil, was reassessed a $41.8 million shareholder benefit in respect of the US $35 million cost of his trip to the International Space Station (“ISS”) in September and October 2009. While on the ISS, the taxpayer appeared via live broadcast video link in a series of fundraising benefit concerts. A contribution of capital was made so that a 20% arm’s length shareholder in the Cirque du Soleil operating company would not bear any of the cost of the trip. After the trip was completed and paid for by the taxpayer’s holding company, it was charged to the top operating company in the Cirque du Soleil group, Créations Méandres Inc., which then deducted the $41.8 million cost of the trip, less a $4 million shareholder benefit reported by the taxpayer, for financial accounting purposes but not for income tax purposes. It was the taxpayer’s position that the space trip was intended to be, and was in fact, used to help promote the 2009 launch of Cirque du Soleil’s first show in Russia – although none of the costs of the space trip were charged to the marketing budget for the Russia show.

Boyle J found (at para. 11) that “that the motivating, essential and overwhelmingly primary purpose of the travel was personal.” He concluded (at paras 52, 54, 55 and 57):

… I find a benefit was conferred on the Appellant by his family holding company, 2739-2224 Québec, either conferring the benefit directly when it signed the Space Flight Agreement and/or when it paid Space Adventures for the trip he had arranged for primarily personal purposes, and/or by allowing all or part of the benefit to be provided indirectly by another Cirque du Soleil company, Créations Méandres, when it reimbursed the Appellant’s family holding company. I find this benefit was conferred on him qua controlling shareholder. This is sufficient to engage each of subsection 15(1) and subsection 246(1).

…I do recognize that the Cirque du Soleil promotional business-related activities in which the Appellant participated while on his trip were most probably more valuable having been from space than had they been from anywhere on earth. For that reason I could conclude that an allocation in the range of 0 to 10% of the cost of the space trip would be a reasonable charge to Cirque du Soleil. …

I am fixing the amount of the business-related portion of the cost at the top of that range at - $4.2 million. … [T]he remaining 90% of the cost of the trip, being $37.6 million, was the amount of the benefit conferred on and enjoyed by M. Laliberté.

…[T]here is a difference between a business trip which involves or includes personal enjoyment aspects, and a personal trip with business aspects, even significant ones, tacked on. I have found that this space trip falls into the latter category … .

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 246 - Subsection 246(1) taxable benefit from one company initially bearing costs of shareholder space trip and then being reimbursed by an Opco 208

Melançon v. The Queen, 2018 CCI 73

failure of a house construction company to charge a mark-up on its costs incurred for shareholder work generated at taxable benefit/rebooking of “expense” as shareholder advance was retroactive tax planning

The taxpayer, who was the sole shareholder of a (“Gexco”), which used nine employees in its house-construction business. Gexco paid third-party suppliers of construction materials and services that were used in constructing a personal residence for the taxpayer, and was reimbursed therefor by the taxpayer. CRA determined that in that year the profit margin of Gexco on its other construction work was 8.09%. In affirming the CRA assessment of a s. 15(1) benefit equal to 8.09% of the construction costs for the residence, Smith J stated (at para. 35, TaxInterpretations translation) that “it was specifically demonstrated that in the Gexco books, the accounting treatment of the residence construction was treated as ‘contract revenues’ and that no management fee was computed nor any profit booked,” and quoted with approval (at para. 37) the statement in Park Haven that:

He received a custom built home without having to pay the 10% management fee that any other customer would have had to pay. The benefit is …. 10% of construction costs of $259,293 or, $25,929. This is clearly an advantage not available to regular customers … .

After the auditor noticed that other amounts booked as “subcontractor expenses” had been paid to the taxpayer, such amounts were rebooked as shareholder advances. Before finding that these amounts had also given rise to a taxable benefit under s. 15(1), Smith J quoted with approval the statement in Bibby v. The Queen, 2009 TCC 588 that:

None of [the cited cases], however, support the appellant’s proposition that adjustments to the expenses of a previous fiscal period, and concomitant changes to the income of the employee for a previous year, may be made on a retroactive basis … . It is, of course, permissible to enter into a second transaction of the kind dealt with by the Board in Brazelot, so long as it is accounted for in the fiscal period when it takes place. What is not permissible is retroactive implementation of tax planning by purporting to undo, or change, transactions that took place in an earlier period.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Effective Date rebooking of “expense” as shareholder advance was retroactive tax planning 164

Rowntree v Commissioner of Taxation, [2018] FCA 182

loan or other contract can only be achieved explicitly or through being evinced by conduct

The taxpayer, an experienced lawyer, received over $4 million in numerous dealings with companies that he controlled and, for most of them, was the sole director. He appealed assessments including these amounts in his income on the basis that they were loans to him. The Administrative Appeals Tribunal found that two of the receipts (for $1,000,000 and $80,000) were received as loans, but that loans did not exist at the time of his other receipts.

In dismissing the taxpayer’s appeal, Rares J stated (at paras 53, 54, and 55):

In Crowe-Maxwell v Frost (2016) 91 NSWLR 414 at 430-431 [81]-[84] Beazley P… referred to what Barrett J had said in Fisher v Divine Homes Pty Ltd (2011) 85 ACSR 512 at 5221 [50]-[51] including (at [50]):

If a company is to enter into a service contract with its director, it must do so in some clearly observable manner. … Corporate decisions and acts can only be achieved in explicit ways… . Coincidence of the identity of the sole director, the sole shareholder and the person by whom services are provided does not mean that the corporate decision to enter into a service contract and the actual formation of the contract can take place wholly within the individual’s head and be revealed, if at all, only when it suits him or her to reveal it. (emphasis added)

Beazley P went on to say (91 NSWLR at 430-431 [84]):

Whilst Barrett J’s opinion that entry into a contract must be apparent in some concrete way may be accepted, there can be no question that, as McHugh JA (Hope and Mahoney JJA agreeing) held in Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR [97326] at 11,117:

“… a contract may be inferred from the acts and conduct of parties as well as or in the absence of their words. The question in this class of case is whether the conduct of the parties viewed in the light of the surrounding circumstances shows a tacit understanding or agreement. The conduct of the parties, however, must be capable of proving all the essential elements of an express contract.” (citations omitted) (emphasis added)

The significance of the emphasised passage from McHugh JA’s reasons is that the task for the fact finder … where there is no document recording an alleged contract, is to examine the acts and conduct relied on in the context in which they occurred to ascertain whether objectively they evince a contract. …

Locations of other summaries Wordcount
Tax Topics - General Concepts - Evidence contract must be evinced by documents or conduct 160
Tax Topics - General Concepts - Evidence contract must be evinced by documents or conduct

Engelberg v. Agence du revenu du Québec, 2017 QCCQ 14819

agreement to transfer a to-be-constructed condo unit to a shareholder did not generate a shareholder benefit until the year of transfer

The individual taxpayer (Engelberg) was a shareholder of the corporate taxpayer (“Canada Inc.) and did not deal with it at arm’s length. In December 2005, Canada Inc. purchased land with a view to using it in a condominium project. In July 2006, Engelberg agreed with Canada Inc. to purchase a project condominium unit for a purchase price of $447, 679. The financing for the project was confirmed in October 2006, construction was completed in September 2007, and the condominium unit was transferred on May 28, 2008 to Engelberg at the agreed price (the “sale”). If the unit had been in existence in 2006, its fair market value (“FMV”) at that time would have been $560,000, and the ARQ assessed the 2008 taxation year of the taxpayer for a shareholder benefit equal to the $112,321 difference, and assessed Canada Inc. under the Quebec equivalent of s. 69.

Before rejecting the taxpayer’s submission that his 2006 taxation year (when the agreement with Canada Inc. was made and the financing then became available) rather than 2008 taxation year should have been assessed (so that Engelberg’s appeal was dismissed), Lareau J quoted from Boulet at length and then stated (at paras. 30-31, TaxInterpretations translation) that here, the situation was “fundamentally different” as “the object of the transaction was property that did not exist at the time of the purchase agreement.” He further noted (at para. 36) that the financing conditions were changed by the time of the May 28, 2008 sale as the agreed hypothec to be assumed had been changed, “a change to the conditions of sale which could have an effect on the quantification of the benefit which was conferred on the shareholder.” He then stated (at paras. 38-39):

Permitting the crystallization of the time for the benefit respecting the transfer of a future immovable to be prior to the time when the property exists is not only impracticable, it is also an impossibility. …

…[As per] Robertson and Henley … it is only when the condition or contingency is met that such a benefit arises. In this case, that time is that of the date of the sale.

After noting that for an inexplicable reason, the ARQ had assessed 2008 based on the 2006 value, he stated (at para. 40):

This is clearly an error, but one which is to the benefit of the appellants as this leads to a fair market value that is somewhat less than that in 2008. There is therefore no effect on the amounts assessed.

R. v. Golini, 2016 TCC 174

a loan to a shareholder with recourse limited to an asset pledged by the corporation was a shareholder benefit

The taxpayer (“Paul Sr.”) following an estate freeze held preferred shares of the holding company for the family business (“Ontario”) with a redemption amount of $6.1 million and a low adjusted cost base and paid-up capital ("PUC"). The following “structured transaction” was then implemented (with various indicated payments occurring by direction):

  1. Paul Sr. exchanged most of his Ontario shares on an s. 85(1) rollover basis for shares (having a value of at least $6 million) of a newly-incorporated Ontario corporation (“Holdco”).
  2. Ontario borrowed $6 million from an offshore bank (“DGM Bank”), with the only “security” being escrow arrangements which effectively ensured that the funds would be returned in step 11 below.
  3. The loan proceeds were used to redeem the Ontario shares held by Holdco.
  4. Holdco purchased for $6 million from a Nevis company (“St. Joseph’s Assurance”) an annuity paying $400,000 annually for 15 years (together with an index-linked participation feature that was inapplicable given the actual use of funds).
  5. Holdco purchased a life insurance policy on Paul Sr.’s life, with an initial death benefit of $6 million which annually increased, from a Barbados affiliate of DGM Bank (“DGM Insurance”) by directing the application of the annuity payments to pay the premiums.
  6. St. Joseph’s Assurance and DGM Insurance reinsured 100% of their risk by paying $6 million to another Barbadian company (“Stellar Insurance.”)
  7. Stellar Insurance invested $6 million with a St. Vincent and Grenadines company (“Trafalgar”).
  8. Trafalgar lent $6 million to a Canadian company (“Metropac”) owned by an accommodation party, with terms matching those of the loan in 9 below.
  9. Metropac provided a $6 million loan (the “Metropac Loan”) to Paul Sr., guaranteed by Holdco for a fee of $40,000 a year, with that guarantee secured by Holdco’s annuity and policy acquired in 5 above. The loan terms limited Metropac’s recourse thereunder to realization of such security. The loan accrued interest at 8% p.a. ($480,000), of which $80,000 was required to be paid annually, with the balance to be capitalized.
  10. Paul Sr. used the loan proceeds to subscribe for newly-created Class D preferred shares of Ontario having a PUC of $6 million.
  11. Ontario repaid the loan it had received from DGM Bank one week earlier.

In finding that Paul Sr. had received a taxable s. 15(1) benefit of $5.4 million (determined by multiplying the $360,000 difference between the annual insurance cost and guarantee fee of $400,000 and $40,000, respectively, by 15 years), C. Miller J stated (at paras. 97-98, 102):

The transactions were structured such that there would be no sensible reason for Paul Sr. to repay the loan. Everyone’s understanding was the annuity and insurance were the only manner in which the obligation of the Metropac loan would be met… .

I grant the documents may be interpreted as not constituting an absolute assignment, but they can as readily be interpreted to do exactly what the parties intended, and that is to relieve Paul Sr. of his burden of repayment and have Holdco repay the loan with insurance proceeds… .

Holdco has agreed to use insurance proceeds from a policy it owns to pay off its shareholder’s debt.

Although “there was likewise a benefit equal to the amount of capitalized interest that Paul Sr. was relieved of ever having to pay, due to the very structure of the transactions” (para. 129), this was offset by an equal interest deduction.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Sham sham doctrine did not apply to a "minor pretence" 326
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c) interest deduction on limited recourse loan 293
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) use of corporate asset to create PUC was abuse of s. 84(1) 244
Tax Topics - Income Tax Act - Section 84 - Subsection 84(1) policy of 84(1) 215

Latham v. The Queen, 2015 DTC 1104 [at 617], 2015 TCC 75

distribution to shareholder reimbursed him for loss as guarantor

The taxpayers ("John and Diane Latham") owned a corporation ("Farmers"), which rented out buildings to third parties, and to a related company. In November 2000, Farmers established two credit facilities with the CIBC. In 2002, John Latham transferred $100,000 of investments he held in a personal portfolio service account with the CIBC to that bank as a payment under a guarantee. John Latham testified that the CIBC had destroyed the records of that transaction.

All of the assets of Farmers, including the building, were sold in early 2005 pursuant to a foreclosure action. Farmers ceased operations in 2006. On March 24, 2005, Farmers received $117,976 from the sale of its assets, $94,000 of which was paid to John Latham. CRA found that this amount constituted a shareholder benefit under s. 15(1) or deemed dividend under s. 84(2).

D’Arcy J allowed the taxpayers' appeal. He found that Farmers paid the $94,000 to Mr. Latham as a partial repayment of amounts he had paid personally to the CIBC in 2002 pursuant to the Guarantee.

D’Arcy J further concluded that there was not a deemed dividend, on the basis that “Farmers suffered a loss on the disposition of its assets” which “wiped out the retained earnings” (para. 32).

Other locations for this summary
Tax Topics - Income Tax Act - Section 84 - Subsection 84(2) deemed dividend not possible where foreclosure eliminated corporations's assets

Charania v. The Queen, 2015 DTC 1103 [at 614], 2015 TCC 80 (Informal Procedure)

no shareholder benefit from erroneous property valuation

The taxpayer owned a large portion of the non-voting shares in a corporation ("B&N"). The taxpayer lived in a property that B&N had purchased and rented out to him (i.e., a Declaration of Trust signed by B&N was ignored by it and discounted by VA Miller J - but the taxpayer thought he beneficially owned the property and that the monthly payments made by him were mortgage payments rather than rent). Preliminary to a subsequent sale by him of the house for $275,000, it was transferred to him by B&N, with an amount equal to the excess of its book value over the outstanding mortgage amount being treated in the B&N books as a shareholder loan. (Para. 15 appears to incorrectly ignore the mortgage amount.) However, the net fair market value of the property (based on its fair market value of $275,000) was $79,779 higher, and the taxpayer was assessed for this amount as a shareholder benefit.

In finding that there was no shareholder error (but with the understanding that the shareholder loan would be increased in order to correct the error), VA Miller J stated (at paras. 40-41):

The Appellant was not aware of the error in this case nor did he sanction the error. He believed that the Declaration of Trust was followed and that he already owned the Property.

It is clear that B&N did not intend to confer a benefit on the Appellant. It transferred the Property to him and included an amount with respect to the Property as a loan receivable from him. The problem was that the amount included was incorrect. This problem arose as a result of an error made by [the accountants] not from any intent of B&N or the Appellant to commit a fraud.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Effective Date consideration for transfer to shareholder adjusted without price adjustment clause 227

Rogers Estate v. The Queen, 2015 DTC 1029 [at 124], 2014 TCC 348

cash surrender of employee stock options for their value was not shareholder benefit

Pursuant to a share appreciation right ("SAR") attached to stock options granted by a public corporation which he controlled and of which he was the CEO, the taxpayer surrendered the options for a cash payment equal to their value.

After finding that this "Surrender Payment" was not a taxable employment benefit, Hogan J dismissed the Minister's argument that it was a shareholder benefit, stating (at para. 52):

Mr. Rogers gave up something of equal value to receive the Surrender Payment. The Surrender Payment reflected the "in-the-money value" of the Options. It was consideration for the cancellation of the unexercised Options. Viewed in this light, the Surrender Payment can hardly be described as a "benefit" taxable under subsection 15(1)… .

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 39 - Subsection 39(1) - Paragraph 39(1)(a) capital gain can arise from property which is not capital property 249
Tax Topics - Income Tax Act - Section 5 - Subsection 5(1) exercise of stock option surrender plan for FMV was not "remuneration" 111
Tax Topics - Income Tax Act - Section 7 - Subsection 7(3) - Paragraph 7(3)(a) s. 7 a complete code for taxation of stock option benefits 214
Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Options holding one's employee stock options until just before they expire is not typical of an adventure in the nature of trade 171

Versteegh Ltd & Ors v. Commissioners, [2013] UKFTT 642 (TC)

required transfer of value between subs not a benefit

One company in a group of UK companies (the "Lender") made a loan to a subsidiary (the "Borrower"). The loan terms obligated the Borrower to issue preference shares, in an amount equivalent to a market rate of interest on the loan, to another subsidiary of the Lender (the "Share Recipient"). The Borrower deducted that amount as interest, and no group company recognized interest income on the loan.

The Lender was not required under a specific provision to recognize interest income. That provision would have applied if the accounting method adopted by it (which was to not recognize interest income) could not be justified as conforming with GAAP. The Tribunal accepted the characterization of the taxpayer's accounting expert, which was that the Lender had made the loan in consideration for the right to receive back the principal plus the right to require a transfer of value between its wholly-owned subsidiaries, which latter right was of no incremental value to it, so that there should be no corresponding recognition of accounting income. It rejected the Crown expert's characterization that the transaction effectively was like an interest-bearing loan, but with the interest not being received directly, but invested by the Lender.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 9 - Exempt Receipts/Business taxable share interest on loan held by affiliate 158

Tyskerud v. The Queen, 2012 DTC 1179 [at 3453], 2012 TCC 196 (Informal Procedure)

clear corporate appropriati0n

The taxpayer's use of her corporation's line of credit to pay down her personal debt resulted in a clear shareholder benefit, and her failure to report this benefit on her return was grossly negligent and warranted penalties under s. 163(2). Margeson J. noted that the amount of the benefit ($41,765.58) was large compared to the taxpayer's reported income ($12,925).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 163 - Subsection 163(2) obvious and substantial shareholder benefit 56

McIntosh v. The Queen, 2012 DTC 1049 [at 2741], 2011 TCC 579 (Informal Procedure)

meals received in employee capacity

The taxpayers were the sole shareholders and employees of a corporation engaged in the business of auto retailing. The corporation compensated the taxpayers for meals taken when they needed to work at night or on weekends, which was often. Woods J. found that this compensation arose in the taxpayers' capacity as employees, so it was not a shareholder benefit. The Minister had not made submissions as to whether the compensation was an employee benefit.

Canadian Winesecrets Inc. v. The Queen, 2011 DTC 1310 [at 1742], 2011 TCC 390 (Informal Procedure)

mere personal goodwill

The taxpayer was incorporated by a non-resident individual carrying on a proprietorship. It then acquired assets of the proprietorship (comprising cash and accounts receivable) for a total of $118,342 and assumed accounts payable of $181,357 (for a difference of $63,015). The Minister assessed the taxpayer for failure to remit Part XIII tax under s. 215(1) on the basis that the proprietor was deemed to receive a dividend 0f $63,015 (perhaps under ss. 15(1) and 214(3)(a), although Angers J. referred instead to s. 212.2).

The taxpayer did not establish that the $63,015 difference corresponded to a transfer of goodwill. Angers J. noted that there was "no information concerning a client's list or regarding reputation, location, or brand loyalty" (para. 19). Whatever goodwill existed was personal goodwill towards the proprietor rather than commercial goodwill towards the proprietorship, and therefore was not transferable. He then stated (at para. 21):

[T]he question to ask to determine whether goodwill is personal is this: if the person withdraws from the business will any goodwill remain?

Locations of other summaries Wordcount
Tax Topics - General Concepts - Fair Market Value - Other 160

Boulet v. The Queen, 2010 DTC 1015 [at 2602], 2009 TCC 261

benefit conferred when shareholder receives unconditional right thereto, rather than when such right subsequently exercised

On September 18, 1998, the two taxpayers agreed that they would incorporate a company (the “Company” – to be owned equally by them) to purchase land from a third party (Desjardins Trust) and that the Company would accord them the right (the “Options”), to transfer ½ of the lands to each of them at the Company’s cost. The Company then made Desjardins Trust an offer to purchase the entire lands, which was accepted on December 22, 1998. On March 23, 1999, the purchase closed, and on November 21, 1999, the taxpayers exercised their option. at a price that was substantially lower than what would have been their fair market value in the absence of the Options.

In finding that no benefit was conferred on the taxpayers by virtue of their exercise of the Options in November 1999, Bédard, J. found that there was a taxable benefit to the taxpayers in December 1998 when the Company acquired a right to the property (so that there was a corresponding right arising to the taxpayers under the Options at that time) but that there was no taxable benefit under subsection 15(1) in 1999 (the only years assessed in this regard by the Minister). He stated (at para. 40):

[T]he Appellants should have determined the pecuniary value of the benefit, if any, as at December 22, 1998 (when Desjardins Trust accepted the Company's offer) and should have included the subsection 15(1) benefit in computing their income for the 1998 taxation year. Indeed, the Company acquired a right as soon as its offer was accepted by Desjardins Trust, and, consequently, at the same moment, the Appellants acquired rights from the Company — rights that they could therefore assign to third parties, since no provision of the Agreement prohibited them from assigning their rights. In addition, it is my view that no benefit was conferred on the Appellants on November 21, 1999, when they became the owners of their parcels as contemplated in the Agreement, since the Company merely gave the Appellants what they were entitled to. … No benefit is conferred if a company merely complies with an undertaking that it made earlier under a genuine commercial transaction (in this instance, the Agreement).

Locations of other summaries Wordcount
Tax Topics - General Concepts - Fair Market Value - Land binding NAL agreement suppressed land's FMV 207
Tax Topics - Income Tax Act - Section 54 - Principal Residence 61

Potvin v. The Queen, 2008 DTC 4813, 2008 TCC 319 (Informal Procedure)

negligible work - therefore shareholder benefit

The provision of a truck to the taxpayer's husband by a corporation of which she was the sole shareholder and he the principal employee was found to be a benefit to her under s. 15(1) (as assessed by the Minister) rather than under s. 6(1)(e) given that the work performed by him in the year in question was negligible (the corporation had largely ceased operations). Accordingly, the benefit was conferred on her husband by reason of her shareholding rather than by reason of his employment.

Gestion Léon Gagnon Inc. c. La Reine, 2007 DTC 267, 2006 TCC 682

no benefit on hi-low share issuance

No s. 15(1) benefit was conferred on the taxpayer when a corporation, ("CFIC") whose common shares were owned as to 55% by the taxpayer's sole shareholder and as to 45% by his wife, issued preferred shares to the taxpayer with a redemption amount of $1,000 per share and a subscription price of $1 per share. The preferred shares were redeemed a month later in order to extract funds from CFIC). Lamarre Proulx J. found that subsection 15(1) did not contemplate that there would be a benefit conferred by virtue only of shares being issued with a high redemption amount given that their redemption would be deemed to give rise to a dividend under subsection 84(3).

Park Haven Designs Inc. v. The Quenn, 2006 TCC 685

shareholder benefit based on non-charged management fee where custom home built for shareholder at cost/no shareholder benefit where benefit is only incidental

A husband and wife (the Jaques) owned a corporation (“Park Haven”) that managed the building of custom homes for customers. A property (the Slopes House) was built in 1998 especially for the Jaques, who lived in the property and also showed it as a show home. Park Haven acquired some high-end furnishings for this home including a grand piano, pool table, and couches (the Furnishings) at a cost of approximately $46,500. The Slopes House was sold to the Jaques in 1999.

In confirming that Mr. Jaques received a benefit under s. 15(1) in connection with the construction of the Slopes House, C Miller J stated (at para. 29):

He received a custom built home without having to pay the 10% management fee that any other customer would have had to pay. The benefit is …. 10% of construction costs of $259,293 or, $25,929. This is clearly an advantage not available to regular customers and only available to Mr. Jaques due to his position as a shareholder.

However, in finding that the Jaques did not for the most part receive shareholder benefits in connection with the Furnishings, he stated (at para. 38):

… Park Haven's sole purpose in acquiring most of the Furnishings was not to bestow any benefit on the shareholders, but to furnish a show home so as to enhance the saleability of custom homes in the area. Where the purpose then is not to bestow or confer a benefit, does any incidental benefit arise simply by the Furnishings being available to the Jaques for use or enjoyment? No, I believe that would be an incorrect interpretation of subsection 15(1) of the Act. If the evidence, however, was clear that in acquiring assets, Park Haven had several purposes, one of which was to benefit the shareholders, then a benefit would be established and the incidental availability of the assets to the shareholders would go to the question of how to value that benefit. Again, the only asset that I find was acquired for such dual purposes was the audio equipment. The evidence from Mr. Jaques that such equipment was to be used for promotional purposes did not suggest that was to be its exclusive use. I determine the value of the benefit of this audio equipment, given it was also intended for business purposes is 50% of its value of $1,752, or $876, resulting in a $438 benefit to each of Mr. and Mrs. Jaques.

Truckbase Corporation v. The Queen, 2006 DTC 2930, 2006 TCC 215 (Informal Procedure)

corporate payment of shareholder agreement fees

In finding that the payment by a corporation of professional fees incurred for the preparation of shareholder agreements did not give rise to a shareholder benefit to its (individual) shareholders, McArthur J. found that the revised Shareholder Agreements gave rise to a corporate structure that made the business of the corporation more profitable and, respecting an argument that the expenditures were on capital account, indicated (at p. 2934) that he would "liken the redrafting of the Shareholder Agreements as the maintaining of an asset and (at p. 2935) the Shareholder Agreements were "amended to function as originally intended".

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Legal and other Professional Fees shareholder agreement expenses deductible 99

Colubriale c. La Reine, 2006 DTC 2577, 2004 TCC 578

"ought to have known" rather than "intent" standard

After finding that a shareholder benefit was conferred on the taxpayer when he transferred a property to a corporation of which he was majority shareholder for a sale price 50% higher than the property's fair market value, Angers J. stated (at p. 2582):

"Under that case law, the application of subsection 15(1) of the Act does not require an intent to confer a benefit on the shareholder. It is enough that the shareholder knew or should have known, given the facts in the case, that he was receiving a benefit further to the transaction at issue ... . The appellant and his accountant made no effort to determine the property's fair market value prior to the transfer."

Locations of other summaries Wordcount
Tax Topics - General Concepts - Fair Market Value - Land 121

Roth v. The Queen, 2005 DTC 1570, 2005 TCC 484, aff'd 2007 DTC 5222, 2007 FCA 38

know-how not property

The purported transfer by the taxpayer of an undeveloped project (i.e., of know-how he had developed with respect to a proposed LNG project) was not accomplished without any conveyance document and, in any event, "information, ideas, knowledge and/or know-how do not fall within the meaning of the word 'property'" (p. 1579). Accordingly, a shareholder benefit was conferred on him when through a journal entry the transferee corporation showed an amount owing to him for the transfer.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Incurring of Expense purported transfer of knowhow to corportion did not entail acquisition of property 96
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Property knowhow not propery 79

World Corp. v. The Queen, 2003 DTC 951, 2003 TCC 494

The taxpayer assigned a commission of $3.9 million that was to be paid on a deferred basis by a limited partnership in consideration for the taxpayer having helped secure $49 million in equity capital that was to be invested (largely on as deferred basis) in the limited partnership, which was slated to purchase an office tower property approximately six months later, to a Cayman Islands corporation that was an indirect shareholder and with which it did not deal at arm's length, for cash consideration of $41,300. It was assessed for Part XIII tax on the basis that the fair market value of the commission was $2,458,700.

In allowing the taxpayer's appeal, Bell T.C.J. noted that there was no signed agreement respecting the commission and apparently no oral agreement or understanding between the taxpayer and the limited partnership promoter as to the terms and conditions of such agreement, that the general partner of the partnership was without significant assets, that no commission would be payable until the partnership acquired the property and there was significant uncertainty as to whether such acquisition would occur.

Dobbin v. The Queen, 2003 DTC 118 (TCC)

The taxpayer was unsuccessful in the submission that a shareholder benefit arising to him, computed as the difference between an imputed rate of return on capital and the amount of rent paid by him, arising from the construction of a home by a company that was partly used by him for personal use, should be reduced by an imputed rent on artwork and antiques, valued at least $834,000, which were owned by him and were kept at the house. There was no connection between the art and the costs incurred in acquiring the home.

Foresbec Inc. v. The Queen, 2002 DTC 1786 (TCC), aff'd 2003 DTC 5455, 2002 FCA 186

At the time of the purchase by the taxpayer of a control block of the shares of a public company (Foresbec), it and Foresbec "granted" to the vendor corporation a contract for the services of a former executive of Foresbec who was associated with the vendor.

Foresbec, by making payments to the vendor under that contract, conferred a benefit on the taxpayer. It was never contemplated that the consulting contract would be implemented and all that it provided for was an obligation to make the payments irrespective of the provision of any services.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Sham documents did not reflect legal reality 56
Tax Topics - General Concepts - Tax Avoidance documents did not reflect legal reality 56
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Income-Producing Purpose 79

Robson v. The Queen, 2001 DTC 1039 (TCC)

Bowman A.C.J. stated (at pp.1043-1044):

"There is a departmental mindset, shrouded in the euphemistic rubric of fiscal symmetry, that says that if you disallow an expense to a corporation you must simultaneously find a shareholder on whom to visit a parallel and matching tax consequence under s. 15 of the Income Tax Act. The premise on which this practice of double taxation is based is evidently some misplaced sense of moral rectitude that, so the argument goes, justifies the imposition of an additional punishment on the shareholders for allowing their company to incur disallowable expenses."

Davisson v. The Queen, 2000 DTC 2140 (TCC)

A loan made by a corporation of which the taxpayer was the sole shareholder to an insolvent corporation owned by his wife ("Arena") gave rise to an inclusion in his hands under s. 15(1) or s56(2) given that there was no loan agreement, no agreement for repayment had been established, and Arena had ceased operations when the payments were made.

Safety Boss Ltd. v. The Queen, 2000 DTC 1767 (TCC)

conferral on corp increasing its value is benefit conferred on shareholder

Before going on to find that amounts paid by the taxpayer to its non-resident shareholder and to a non-resident company controlled by him were reasonable in amount, and that their payment did not give rise to the conferral of any benefit, Bowman TCJ. noted that, in the case of the payments made to the non-resident company, the benefit under s. 214 was assessed on the individual rather than his non-resident company and stated (at p. 1770):

"I should have thought as a matter of common sense that the conferral of a benefit on a corporation, all of the shares of which are owned by a taxpayer, would constitute a benefit conferred on the taxpayer. It increases the value of the taxpayer's shareholding in the corporation that receives the benefit and allows the corporation to make payments to the shareholder that it could not otherwise do.

Pellizzari v. MNR, 87 DTC 56 (TCC)

benefit qua employee

Before going on to find that the taxpayer had received income from employment under s. 5(1) as a result of a corporation of which she was shareholder, director and officer paying all the legal expenses incurred in connection with defending her and the corporation against criminal charges, and before finding that this payment of her share of the legal fees by the taxpayer was made because she was an officer of the corporation, not because she was a shareholder, Couture C.J. stated (at p. 57):

"If a taxpayer is a shareholder and officer of a corporation and he or she receives a benefit or advantage from the corporation this is not, of itself, conclusive of the fact that the benefit or advantage was conferred on the taxpayer in his capacity of shareholder. In other words, it does not fall that in such a situation, the provisions of subsection 15(1) automatically apply."

Long v. The Queen, 98 DTC 1420 (TCC)

The inadvertent failure of a corporation's bookkeeper to debit the payment of a personal expenditure against the balance for the loan owing by the corporation to the taxpayer did not give rise to a shareholder benefit.

Donovan v. The Queen, 94 DTC 1143 (TCC), aff'd 96 DTC 6085 (FCA)

The shareholder benefit to the individual taxpayer from his free use of a Florida residence that he had transferred to a family corporation was not reduced by the amount of interest that he might have charged on an interest-free loan made by him to the corporation. The decision in Youngman v. The Queen, 90 DTC 6322 (FCA) was distinguished on the grounds that here there was no connection between the loans and the original cost of the residence and that in that decision, "the Federal Court of Appeal did not have put to it nor did it consider the implications of barter" (p. 1147).

Dale v. The Queen, 94 DTC 1100 (TCC), aff'd supra.

At the time of a purported capital dividend on preference shares, the authorized capital of the corporation had not yet been amended to include preference shares. Accordingly, the amount paid to the shareholders was a shareholder benefit rather than a capital dividend, notwithstanding a court order, made following the continuance of the corporation into another jurisdiction, purporting to add the preference shares to the corporation's authorized capital effective prior to the time of the purported dividend.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 85 - Subsection 85(1) shares must be issued within a reasonable time 220
Tax Topics - Statutory Interpretation - Drafting Style 85

Del Grande v. The Queen, 93 DTC 133 (TCC)

not a shareholder benefit if option exercisable only while officer; obligation v. conferral

The taxpayer, who was an officer, director and shareholder of two corporations and provided financial and business advice to the other principal was granted options to acquire the shares of the two companies for an exercise price equal to the nominal fair market value of the shares at that time and, three years later, at a time that the shares had substantially appreciated in value, exercised the options in order to facilitate an extension of the corporate line of credit through his giving of a guarantee. In finding that no benefit was received by the taxpayer, Bowman J. stated (p. 137):

"The word 'confer' implies the bestowal of bounty or largesse, to the economic benefit of the conferee and a corresponding economic detriment of the corporation. Such was not the case here. The corporations did no more than was legally required of them."

In addition, given that his rights under the option agreement did not depend upon his being a shareholder and his options were exercisable only while he was an officer or director, any benefit received by him would not have been received by virtue of being a shareholder.

Words and Phrases

Simpson v. MNR, 92 DTC 1912 (TCC)

A lump sum of $433,333 received by the taxpayer from a bank was found to have been received in settlement of his claim against the bank for putting his company into receivership without adequate notice rather than in settlement of any claims of the company. Although there may have been a claim by the company that as a matter of law the settlement sum paid to the taxpayer was its property, the only issue before the court was what the taxpayer in fact did (received damages for his claim) rather than what the civil consequences of his actions might have been if challenged by third parties. Accordingly, the sum received by him should not be included in his income as a shareholder benefit or as a dividend.

Mullen v. MNR, 90 DTC 1551 (TCC)

Brulé J. found that s. 15(1) did not apply to a shareholder of a connected corporation in light of the fact that this situation was specifically addressed in s. 15(2) but not in s. 15(1).

Doyon v. MNR, 90 DTC 1132 (TCC)

In rejecting a submission that because the majority shareholder of a plumbing company was (allegedly) aware of the company's payment of personal expenses of the taxpayers (who were minority shareholders), those appropriations should be regarded as loans, Lamarre Proulx J. stated (at p. 1134):

"In the case of a loan, the amount loaned and the intention to lend and to borrow must be certain. There must be a meeting of minds on a purpose. The evidence did not disclose any of these. There was, on the one hand, no entry in the company's books indicating "advances" to employees or shareholders, and on the other, the borrowers kept no records indicating their loans ... If this appropriation was done with the principal shareholder's knowledge, I would say that s. 15(1) of the Act applies. If not, s. 3 must apply."

Gendron v. MNR, 89 DTC 582 (TCC)

A corporation engaged principally in the construction business but deriving 6% of its revenues from rental properties, purchased a Florida bungalow for the exclusive use of its principal shareholder and his family. Tremblay J. accepted Revenue Canada's calculation of the amount of the shareholder benefit as being the difference between (a) the actual expenditures (including mortgage interest) made on the bungalow by the corporation, and interest at prescribed rates on the bungalow's actual cost, and (b) the $1,000 per annum paid for use of the bungalow.

President of India v. La Pintada Companid Navigacion S.A., [1985] A.C. 104

The common law gives the creditor no right to interest on his debt. Such a right can only arise by agreement or by statute.

Cangro Resources Ltd. v. MNR, 67 DTC 582 (TAB)

A payment received by the taxpayer that was stated to be made out of "paid-in capital and paid-in surplus" pursuant to the provisions of the Wisconsin Business Corporations Act was found to be a dividend for purposes of the Act. In finding that the payment did not qualify as a payment made "on the reduction of capital", Mr. Davis stated (at p. 585):

"As the funds distributed by Marine Capital Corporation admittedly represented nothing more than premiums paid into the treasury on the purchase of shares of prices in excess of their par value of $1 per share, the share capital is neither disturbed nor impaired by the distribution of these funds."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Dividend distributions out of share premium based on number of shares held were dividends 211
Tax Topics - Income Tax Act - Section 90 - Subsection 90(1) distributions out of share premium based on number of shares held were dividends 211

Administrative Policy

2019 Ruling 2018-0762581R3 - Foreign Affiliate Reorganization

no s. 15(1) application to sale of assets of CFA2 to CFA1 at NBV preliminarily to wind-up

Prior to the formal winding up of CFA2 into CFA1, it sold its assets at their book value (i.e., for less than their FMV) in exchange for a promissory note of CFA1 and the assumption of liabilities, with that note then being extinguished as a result of its assignment to CFA1 on the formal liquidation of CFA2.

CRA ruled that ss. 15(1), 56(2) and 246(1) will not apply (stating in its summary that "No benefit is being conferred.")

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 5907 - Subsection 5907(2) - Paragraph 5907(2)(f) Reg. 5907(2)(f) does not apply where inventory is transferred on a foreign rollover basis 333
Tax Topics - Income Tax Regulations - Regulation 5907 - Subsection 5907(2.1) Reg. 5907(5.1) applicable to pre-wind-up transfer on a foreign tax law rollover basis 147

5 October 2018 APFF Roundtable Q. 14, 2018-0768851C6 F - Avantage imposable découlant de l’utilisation d’un aéronef

shareholder benefit from corporate aircraft reduced by an interest-free loan made by the shareholder to fund its purchase

IT-432R2, para. 11 indicates that the value of a taxable benefit conferred on a shareholder respecting property made available by the corporation can usually be determined by multiplying a normal rate of return by the greater of the cost and fair market value of the property and adding the operating costs related to the property - but that the amount representing the greater of the cost and fair market value of the property may first be reduced by any outstanding interest-free loans or advances to the corporation made by the shareholder.

Although this position was not repeated in AD-18-01, CRA stated, after citing Youngman:

Where a shareholder grants an interest-free loan to the shareholder’s corporation and that corporation uses that amount to acquire an aircraft that is made available to that shareholder for the shareholder’s personal use, the CRA could accept in determining the available-for-use amount that the initial cost of the aircraft is first reduced by the amount of the interest-free loan that the shareholder made to the corporation to enable the corporation to acquire that aircraft. The result must, however, respect the principle set out in the Youngman decision.

AD-18-01: Taxable Benefit for the Personal Use of an Aircraft

This policy on the computation of taxable benefits arising from the personal use of aircraft will be effective for individual taxation years commencing after 2017 (unless the taxpayer agrees to its earlier application). It is generally less favourable than that in (cancelled) IT-160R3 under which, for example, the benefit could be computed based on the cost of a first-class ticket in a wider range of circumstances (and for a “small, inexpensive aircraft,” might be based on an economy class fare) – and there was no mention of an imputed available-for-use benefit based on the aircraft’s cost.

In computing the value of the taxable benefit arising from the personal use of a corporation’s or employer’s aircraft by its shareholders or employees, there are three main scenarios to consider:

  1. When the shareholders or employees take a flight on the aircraft where there is a business purpose for their presence on the flight, and there is a personal purpose for others taking the flight, the value of the taxable benefit for the latter personal use would be equal to the highest priced ticket available in the marketplace for an equivalent commercial flight.
  2. When the shareholder or employee takes a flight on the aircraft where there is no business purpose for the flight, the value of the taxable benefit is equal to the price of the charter of an equivalent aircraft for an equivalent flight (with this amount being split between the relevant individuals). However, in the employee case, where “an open market charter is not a viable option based on the unique circumstances of the flight, for example there are demonstrable bona fide security concerns for the employee, the taxable benefit will be computed pursuant to scenario 1 for that particular flight.”
  3. Where the shareholder or employee uses the aircraft primarily for personal purposes relative to the aircraft’s total use during the calendar year (taking into account use by non-arm’s length persons), the value of the taxable benefit is equal to the personal use portion of the aircraft’s operating costs plus an imputed available-for-use amount. To compute the available-for-use amount for an owned aircraft, you first multiply the aircraft cost by an imputed monthly interest rate (generally, that under Reg. 4301(a).) The operating benefit and the available-for-use amount are then computed by multiplying the respective costs by the personal use portion relative to the total use portion based on the aircraft log book or other evidence.
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) 656
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) non-deductibility where personal use of corporate aircraft by shareholders 120

May 2017 CPA Alberta Roundtable, ITA Q.9

general presumption that employee-shareholder receives health care spending account benefits as shareholder

A small business only having employee(s) who are also shareholder(s), establishes a notional health care spending account(s) (a type of “private health services plan” under s. 248(1)) under which the corporation administers the accounts for its employee(s) as part of their contract(s) of employment. Would the benefits be derived by the individual’s employment? CRA responded:

[T]here is a general presumption that a sole employee-shareholder receives a benefit or an allowance in his or her capacity as a shareholder since the individual can significantly influence business policy. This presumption may not apply if the benefit or allowance is comparable (in nature and amount) to benefits and allowances generally offered to non-shareholder employees of similar-sized businesses, who perform similar services and have similar responsibilities.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Private Health Services Plan private health service plan rules generally are not available for a sole shareholder-employee 180
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) - Subparagraph 6(1)(a)(i) HCSA for sole shareholder-employee unlikely to operate as insurance plan 200

May 2016 Alberta CPA Roundtable, Q.15

reasonable rents for tangible use of shareholder's home not a benefit

What is the CRA policy on rental claims by a corporation for use of a workspace in a shareholder’s residence (which, in one instance an auditor treated as requiring disclosure of forms T4A, T2200 and T777)? Consider: a monthly payment based on estimated cost reimbursement for costs related to the workspace in the individual’s home; or a reimbursement of actual costs, e.g., of a portion of mortgage interest, property tax, insurance, maintenance, utilities, based on the pro rata square footage usage; or a rental payment. CRA responded:

In general, a monthly rental payment from a corporation to its employee/shareholder would…be meant to compensate an employee/shareholder for costs related to use of office space in the home and would not generally be reported as rental income included on a T776.

In addition, the T2200 and T777 would only apply to situations where the shareholder is also considered an employee of the corporation. …[T]he employee would have to meet the conditions...under subsection 8(13) in order to claim expenses…[which] would be reduced by any payments received from the corporation. …

In each of the examples, a monthly payment based on estimated or actual costs related to a work space in home could be deducted by the corporation, if reasonable in the circumstances. Generally, we would evaluate reasonableness in relation to the actual costs incurred by the shareholder. We would also expect, at a minimum, that the space is needed to file records, book appointments, take business phone calls and perform other administrative functions, as the case may be, and that there is no other space available to the corporation.

If the amount exceeds a reasonable amount, the excess should be reported by the shareholder as a benefit under subsection 15(1). …

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 67 deduction by corporation of rents/reimbursements paid for use of office in shareholder’s home 192

2016 Ruling 2016-0630761R3 - Transfer of Shares

no conferral of benefit where CRA required sideways transfer to occur at less than FMV
Quite similar transactions for the same group and with expanded rulings were ruled upon in 2017-0693751R3

A foreign affiliate (New FA) of a Canadian corporation (ACo) transferred all the shares of FA1 to a Canadian-resident subsidiary (BCo) of ACo in consideration for a note of BCo whose amount equalled the sum of the relevant cost base of the FA1 shares and the net surplus (being exempt surplus) of FA1 (such sum, the “Transfer Amount”). BCo then used share subscription proceeds received by it from ACo to repay the note, with New FA then distributing that cash to ACo and with ACo electing under Reg. 5901(2)(b) for the distributions to come out of New FA’s pre-acquisition surplus. CRA ruled inter alia as to the application of s. 93(1.11) to effectively convert part or all of the capital gain of New FA otherwise realized on its disposition of its FA1 shares into an exempt surplus dividend.

The ruling letter states:

The purpose for the transfer by New FA of its FA1 Shares to BCo … occurring at the Transfer Amount as opposed to occurring at their FMV, was not to confer a benefit on a person, but rather to address certain policy concerns of the CRA by restricting BCo’s aggregate ACB of its FA1 Shares to the Transfer Amount.

CRA ruled that none of the usual conferral-of-benefit provisions applied.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 93 - Subsection 93(1.11) transfer of an FA with exempt earnings by FA Holdco to Can Subco required to occur at less than the shares’ FMV 488
Tax Topics - Income Tax Regulations - Regulation 5901 - Subsection 5901(2) - Paragraph 5901(2)(b) stated capital distribution from FA treated as pre-acq dividend 184

7 October 2016 APFF Financial Strategies and Financial Instruments Roundtable Q. 1, 2016-0651771C6 F - Critical Illness Insurance

benefit on gratuitous transfer of critical illness policy by corporation to its shareholder

CRA noted respecting the transfer for no consideration of a critical illness insurance policy by Opco (which was the policyholder, beneficiary and had paid all the premiums) to its shareholder (so that the shareholder became the holder and beneficiary) to Holdco, that although no capital gain would arise on the transfer to Opco, under s. 15(1) “the value of the benefit could correspond to the FMV of the policy.”

14 March 2016 External T.I. 2016-0626781E5 - Neuman Type Situation

s. 15(1) might apply where spouse subscribes nominal consideration for Opco shares and receives a large discretionary dividend

The only issued and outstanding share of Opco (which has retained earnings of $500,000) is 1 Class A common share, with a fair market value of $1,000,000 owned by Mr. A. Opco issues to Mrs. A, for nominal consideration, 1 non-voting Class B preferred share, which is redeemable and retractable “for the fair market value for which it is issued” and entitled to discretionary dividends as and when declared.

In Scenario 1, Opco immediately declares and pays out a $100,000 dividend on the Class B preferred share, which would have the effect of reducing the FMV of Opco and the 1 Class A common share by the same amount.

In Scenario 2, Opco does not declare and pay the $100,000 dividend until after it has earns an additional $100,000 of income, and the FMV of Opco after the dividend is at least $1,000,000.

What would be the consequences for Opco and its shareholders of such issuance and dividend? CRA responded:

It is possible that…one could take the position that an economic advantage is being conferred by Opco to Mrs. A…[and] that subsection 15(1) applies upon the issuance of the Class B preferred share, particularly if the amount that is being paid by Mrs. A as consideration for the share does not represent the fair market value of such share at the time of subscription.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 56 - Subsection 56(2) s. 56(2) likely non-applicable where spouse subscribes nominal consideration for Opco shares and receives a large discretionary dividend 242
Tax Topics - Income Tax Act - Section 246 - Subsection 246(1) Kieboom treated as entailing disposition of right to receive dividends 316
Tax Topics - Income Tax Act - Section 73 - Subsection 73(1) spousal rollover for Kieboom disposition of economic interest 68

9 October 2015 APFF Roundtable Q. 4, 2015-0595541C6 F - Computation of taxable benefit

determination of normal yield re shareholder-provided luxurious property

The value of the s. 15(1) benefit arising from the provision of property (e.g., a yacht or luxurious residence) to a shareholder may be computed by multiplying a normal yield by the higher of the cost of the property and its fair market value ("FMV"). If the prescribed rate in Reg. 4301(a)(i) cannot be used, how should the normal yield be determined? CRA responded:

When the CRA calculates a benefit conferred on a shareholder by multiplying the normal yield rate by the higher of the cost of the property and its FMV, the goal is to measure the benefit to the shareholder taking into account a reasonable return on the value or the cost of the property. …

[I]n situations where the Prescribed Rate is not representative of the normal yield rate, the Prescribed Rate will not be the rate which is used in calculating the value of the benefit to the shareholder.

…The CRA will examine all the relevant facts in establishing the normal yield rate… .

7 October 2016 APFF Roundtable, Q.8

T4130 policy re discounted merchandise purchases inapplicable to shareholders

After indicating that the policy in Guide T4130, that the sale of “merchandise” by an employer will not give rise to a benefit from employment in a wide range of specified circumstances, does not extend to condos rented by an employer to an employee at its “costs,” CRA also went on to state (having regard to the employee in question also being a shareholder):

The Income Tax Act does not specify how to calculate the value of a benefit that a corporation confers on its shareholder for purposes of subsection 15(1).

Generally, the value of the benefit to a shareholder corresponds to the price that the shareholder would have to pay, in similar circumstances, to obtain the same benefit from the corporation if it were not a shareholder.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) policy on employees’ purchases of discounted merchandise excludes condos 155

9 October 2015 APFF Roundtable Q. 13, 2015-0595781C6 F - Reimbursement of attributed income

no secondary adjustments are required for the operation of most income attribution provisions

Most of the income of a partnership has been allocated and distributed to a partner which is a personal trust, but CRA reallocates most of such income under s. 103 to the other partner, which is a corporation (subject to a lower tax rate than the trust). Notwithstanding that the trust partner has enjoyed income on which it is not subject to tax, CRA acknowledges that there is no obligation for the trust to make any reimbursement payment to the other partner. More generally, CRA acknowledges that the operation of s. 15(1), 51(2), 69(1), 74.1(1) or (2), 74.4(2), 75(2), 85(1)(e.2), 86(2), or 103 to attribute income of one taxpayer to a second taxpayer does not obligate the first taxpayer to reimburse the second taxpayer therefor. This contrasts with ss. 20(1)(j), 90(14), 227(6.1) and 247(13), which provide for the tax consequences of a reimbursement.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 103 - Subsection 103(1.1) no secondary adjustments are required for the operation of most income attribution provisions 115

S2-F1-C1 - Health and Welfare Trusts

benefits from health and welfare trust qua shareholder

1.41 Unless the particular facts establish otherwise, there is a general presumption that an employee-shareholder receives a benefit in the capacity of a shareholder when the individual can significantly influence business policy. A negative answer to one or more of the following questions may also suggest that benefits have been provided to an individual in the capacity of a shareholder:

  • When all participating employees are shareholders or persons related to a shareholder, is the benefit coverage comparable (in nature, amount, and cost-sharing ratio) to coverage given to non-shareholder employees of similar-sized businesses, who perform similar services and have similar responsibilities?
  • Is participation in the plan open to all employees, including those who are neither shareholders nor related to a shareholder? If not, is there a logical reason to exclude some employees?
  • Is the benefit coverage for shareholders or persons related to a shareholder, comparable (in nature, amount, and cost-sharing ratio) to coverage given to other participating non-shareholder employees of the business, who perform similar services and have similar responsibilities?

29 April 2015 External T.I. 2014-0532691E5 F - Vente – immeuble - syndicat copropriétaire

distribution of gain to members of a condominium syndicate gave rise to a shareholder benefit

After noting that a community of condominium owners is treated by s. 1039 of the Civil Code as a legal person, and is a corporation, CRA went on to indicate that when such a syndicate sold one of the condominiums at a capital gain and distributed the gain to its members then, as such members were deemed by the definition of “shareholder” in s. 248(1) to be shareholders, such distribution would give rise to a shareholder benefit.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Corporation community of condominium owners is treated by the Civil Code as a legal person, and is a corporation 117
Tax Topics - Income Tax Act - Section 149 - Subsection 149(1) - Paragraph 149(1)(l) a syndicate of condominium co-owners could qualify as a s. 149(1)(l) corporation, so that a capital gain realized by it on a condo sale would be exempt 147

3 March 2015 Internal T.I. 2014-0527841I7 F - Avantage imposable pour aéronef

benefits from personal use of corporate aircraft based on the cost of similar benefit from arm's length supplier

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 concluded that the valuation of the benefits should be based on their fair market value (corresponding to “what price the shareholder would have had to pay, in similar circumstances, to get the same benefit from a company of which he was not a shareholder.”(at para 42)) 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." (at para 77). A taxpayer submission, based on IT-160R3, that the benefits should be valued based on the prices of first class tickets for comparable trips, was not accepted. See summary under s. 246(1).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 13 - Subsection 13(7) - Paragraph 13(7)(c) apportionment of aircraft use between business and personal 66
Tax Topics - Income Tax Act - Section 15 - Subsection 15(1.4) - Paragraph 15(1.4)(c) s. 15(1.4)(c) applied to extend scope of Massicotte indirect benefit doctrine 158
Tax Topics - Income Tax Act - Section 246 - Subsection 246(1) s. 15(1.4)(c) applied to extend scope of Massicotte indirect benefit doctrine 781

24 September 2014 External T.I. 2014-0522261E5 - Shareholder benefit on leasehold improvements

shareholder benefit arising on tenant improvement must be determined even if reimbursement required on lease termination

: Is the s. 15(1) benefit arising from improvements made by the corporation to shareholder-owned commercial real estate mitigated if under the lease the corporation at lease end must be repaid by its shareholder for the value of the improvements? Q.2: If the shareholder transfers the property to a wholly-owned sub but with the lease term being extended, when is he required to include the s. 15(1) benefit in income?


: After stating that its position in IT-432R2, para. 10 was consistent with the principle established in Kennedy and Ginter that "the amount of the benefit is based on the present value of the amount, if any, by which the addition or improvement increases the value of the property to the shareholder when it reverts to the shareholder," CRA stated:

If the shareholder reimburses the corporation for the value of the improvements as they are completed each year or at the end of the lease term, the extent to which the reimbursement would reduce the present value of the shareholder benefit under subsection 15(1) will depend on the relevant circumstances, including the conditions and provisions of the lease.


: CRA indicated that if the shareholder had an income inclusion in the year the improvements were made, there would be no further inclusion on the subsequent transfer or lease extension.

7 August 2014 External T.I. 2014-0528841E5 F - Changement à une résidence principale

taxable benefit if renovations paid for by tenant-corporation increase the FMV of property to owner-shareholder

A taxpayer renovates the basement of his home by adding a separate door, permitting access from the outside, in order to establish offices there of a wholly-owned corporation. The renovations are paid for by the corporation and the corporation pays rent to the taxpayer. Is there a shareholder benefit? CRA responded:

[T]he taxpayer remains the owner of the principal residence, so that if the renovations increase the value of that residence, a benefit could be conferred on the taxpayer as a shareholder since the corporation paid for the renovations.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 45 - Subsection 45(1) - Paragraph 45(1)(c) addition of a door to an exterior wall could be considered a structural change triggering a change of use 128
Tax Topics - Income Tax Regulations - Regulation 1102 - Subsection 1102(5) Reg. 1102(5) not applicable where door added by tenant to basement rental property 173

11 March 2014 Internal T.I. 2013-0513221I7 F - Stock options

double income inclusion under s. 56(2) or (4) to consulting corporation, and under s. 15(1) to its shareholder, where consultant's options issued directly by client to shareholder

Publico determined to grant stock options to its directors and consultants, as a result of which a private corporation ("Corporation"), that had provided consulting services, was entitled to receive a grant of options. However, such options instead were granted directly to Ms. X, the sole shareholder of Corporation, who subsequently exercised and sold the acquired Publico shares, reporting a capital gain.

After finding that s. 56(4) or 56(2) applied to Corporation, CRA noted that such income inclusion to Corporation did not detract from there also being a taxable benefit to Ms. X under s. 15 (or 6(1)(a), if it was received by virtue of employment - with a potential deduction to Corporation.)

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 56 - Subsection 56(2) s. 56(2) benefit where corporation implicitly consented to consultant's options being issued by client directly to its shareholder 164
Tax Topics - Income Tax Act - Section 56 - Subsection 56(4) implicit transfer by corporation when stock options earned by it were issued directly by its client to its shareholder 169
Tax Topics - Income Tax Act - Section 248 - Subsection 248(28) s. 248(28) does not prevent a double income inclusion to corporation under s. 56 and shareholder under s. 15 218
Tax Topics - Income Tax Act - Section 9 - Timing no s. 9(1) income inclusion from consultant being granted stock options until exercise 216
Tax Topics - General Concepts - Fair Market Value - Options stock options with no in-the-money value could have nil FMV 128
Tax Topics - Income Tax Act - Section 52 - Subsection 52(1) s. 15 benefit due to shareholder receipt of stock options earned by corporation added to the ACB of the exercised shares 157

24 April 2012 Internal T.I. 2011-0400671I7 F - Honoraires professionnels

meaning of “benefit”

In finding that the payment by a corporation of fees that had been incurred by its individual shareholder and that did not qualify in accordance with IT-454, para. 3 as pre-incorporation expenses, the Directorate stated:

The term "benefit" in subsection 15(1) is broad enough to include the following:

(a) a payment to a shareholder by a corporation other than by virtue of a true business transaction;
(b) the appropriation of capital or other property of a corporation in any manner whatsoever to a shareholder or to for the benefit of a shareholder;
(c) any other benefit that a corporation confers on a shareholder.

To the extent that the amount of fees paid by Corporation D must be included in computing Mr. B's income, we do not believe that such fees can be deducted by Corporation D in computing its income.

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Start-Up and Liquidation Costs fees incurred by individual before intention to form a corp did not qualify as pre-incorporation expenses 447
Tax Topics - Income Tax Act - Section 40 - Subsection 40(1) - Paragraph 40(1)(a) - Subparagraph 40(1)(a)(i) tax planning fees paid to joint counsel qualified as a disposition expense 131

16 April 2012 External T.I. 2011-0411491E5 - Taxation of distributions of a US LLC

taxable benefit where US taxes on LLC income allocated to indirect Cdn member are paid by LLC or intermediate ULC

In…2011-0411491E5, CRA commented on an interest in a United States Limited Liability Corporation (LLC) held by an Alberta Unlimited Liability Corporation (AULC) owned by a Canadian resident individual. …[T]he individual would be subject to US taxation on…LLC income attributed to the AULC. CRA indicated that payment of these taxes on the individual's behalf would constitute a taxable benefit, either under S 15(1) if paid by AULC or under S 246(1) if paid by LLC. Can CRA explain the economic enrichment of the individual which it perceives to arise through the ownership structure? CRA responded:

[A]n amount paid by a corporation to its individual shareholder as a reimbursement of that shareholder's personal tax liability would result in an impoverishment of the corporation and an enrichment of the shareholder for purposes of subsection 15(1). A similar enrichment would result for purposes of subsection 246(1) where the shares are held by that individual indirectly through another corporation.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 246 - Subsection 246(1) taxable benefit where US taxes on LLC income allocated to indirect Cdn member are paid by LLC or intermediate ULC 155

7 November 2013 External T.I. 2013-0473771E5 - Shareholder of a Not-for-profit corporation

NPO member receiving "shareholder" benefit

In response to a detailed submission to the contrary, CRA maintained its position under the expanded definition of "shareholder" in s. 248(1)

that members of a non-profit corporation without share capital will be considered shareholders thereof for purposes of subsection 15(1) of the Act, notwithstanding that they are not entitled to receive dividends.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Shareholder NPO member receiving "shareholder" benefit 49

1 May 2013 Internal T.I. 2009-0321721I7 - Stock Option Recharge on Grant Date

stock option reimbursement in year of grant

Canco, a Canadian subsidiary of USCo, a publicly traded company, was required under Canadian GAAP to compute the fair value of stock options granted by USCo to Canco's employees (using the Black-Scholes method) and to recognize, in the year of grant, an expense equal to such fair value minus a deduction for unvested options forfeited in the year. Canco reimbursed USCo, apparently for this net amount, which it added back in computing its income under s. 7(3)(b). The amounts "T4'd" to Canco's employees were instead computed as the in-the-money option values when exercised.

In finding that the reimbursement payment did not give rise to a benefit to USCo under ss. 15(1) and 214(3)(a) (subject to there being no written recharge agreement), CRA stated:

[I]t would be reasonable for Canco to reimburse USCo an amount equal to the intrinsic value of the options on the day of exercise. However…it also is reasonable for Canco to reimburse USCo with an amount equal to the fair value of the options on the day of grant. We understand that in practice, both methods are used….

The Valuations Section...has advised us that the Black-Scholes options pricing model is an acceptable approach to use, assuming that it is adjusted for the differences inherent in employee stock options….

[I]f Canco does not have a history of reimbursing USCo, then we would take the view that there is no [unwritten] recharge agreement in place. If an agreement is subsequently entered into, we would consider that only the portion of the fair value of the options on grant date attributable to the vesting period after the new agreement is in place could be paid to the parent company without subsection 15(1) applying.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Fair Market Value - Options use of Black-Scholes 136

4 December 2013 External T.I. 2012-0465891E5 F - Primes d'assurance / Premiums

insurance premium benefits qua shareholder

When asked whether there would be a taxable benefit where Corporation A, which had other insured employees as well, paid insurance premiums for life insurance policies and disability policies covering Mr. A, who was an employee, director and majority shareholder, CRA stated (TaxInterpretations translation):

Where a person who is at the same time a shareholder and employee receives a benefit which is not offered to other employees, the CRA presumes that the person has benefited therefrom qua shareholder. However, when a similar benefit is offered to all the employees including those who also are shareholders, the latter are considered to have received a benefit by virtue of their employment.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) - Subparagraph 6(1)(a)(i) sub plan with only one employee of particular employer could be a group plan if benefits similar to those for employees in other sub plans 164

29 April 2013 External T.I. 2010-0356401E5 - Stock Option Recharge on Grant Date

stock option reimbursement in year of grant

Under an agreement between a non-resident public company (Parentco) and its wholly-owned Canadian subsidiary (Canco), Canco reimburses Parentco for the fair value at the date of grant of share awards or stock options awards made by Parentco to Canco employees. Such fair value (as computed under IFRS-2) takes into account the fact that the rights to the shares or options have not yet vested on the date of grant.

Such reimbursements by Canco generally would not be considered to be benefits conferred on Parentco under s. 15(1), 214(3)(a) and 246(1)(b). However, upon audit, CRA may review the method used to compute the fair value of the awards.

S4-F3-C1 - Price Adjustment Clauses

CRA will consider a price adjustment clause to represent pricing at fair market value if:

  • the agreement reflects a bona fide intention of the parties to transfer property at FMV;
  • the purported FMV is determined by method that is fair and reasonable in the circumstances (which does not necessarily entail using CRA's preferred method, nor engaging a valuation expert);
  • the parties agree that a CRA or Court valuation, if any, will supersede the price otherwise determined; and
  • the excess or shortfall is actually refunded or paid, or legal liability therefor is adjusted (para. 1.5).

Price adjustment clauses involving shares may use a number of adjustment mechanisms. CRA non-exhaustively mentions changes in redemption value, the issuance of a note or change in the principle amount of a note, or a change in the number of shares issued - although CRA recommends against using the latter because of inherent legal and technical difficulties (para. 1.6).

2012 Ruling 2010-0391281R3 - Incentive Plan - Reimbursement Agreement

reimbursement by Canco when RSUs vest

underline;">: RSU plan. Parent (which is a US public company) has for a number of years been issuing stock options and restricted stock units to employees of it and subsidiaries ("Participants"), including of the Company (an indirect Canadian subsidiary, which is held by another Canadian subsidiary: "Direct Shareholder"). Following the vesting of a Participant's RSUs, Parent issues shares to the Participant.

Proposed transactions

The Company commence reimbursing Parent for the market value of the shares issued to Participant employees of the Company in respect of RSUs that vest. In accordance with s. 7(3)(b), the Company will not deduct the payments.


. No benefit will be considered to have been conferred by the Company on Parent or Direct Shareholder under s. 15(1) or 246(1) and no inclusion in Direct Shareholder's income under s. 56(2) of the Act, by reason of the reimbursements:

(i) in respect of RSUs that were awarded prior to XX and that were not vested at the Effective Time, to the extent of the increase in the value of the RSUs after XX; and

(ii) in respect of RSUs awarded on or after XX, all of the RSU value.

To the same extent, no Part XIII tax.

5 October 2012 APFF Roundtable Q. 13, 2012-0454181C6 F - Discretionary Dividend Shares

discretionary dividend shares issued for nominal consideration

Mr. X holds 100 Class A voting participating shares of Opco with a fair market value of $5M and nominal adjusted cost base and paid-up capital. He incorporates Holdco whose shares have nominal fair market value, adjusted cost base and paid-up capital and exchanges his Class A shares of Opco for preferred shares of Opco with the same FMV, ACB and PUC as the exchanged Class A shares. Opco issues Mr. X 100 Class A shares for nominal consideration and also issues 100 discretionary dividend shares to Holdco. In order to limit the net asset value of Opco to $5M (i.e., for creditor-proofing purposes), Opco annually pays dividends of $500K on the discretionary shares held by Holdco.

CRA stated (TaxInterpretations translation):

We are of the view that subsection 15(1) could apply to the extent that Holdco acquired the discretionary dividend shares of Opco for consideration less than their FMV. Indeed, Opco could be considered to have conferred a benefit on Holdco under section 15(1) when the shares were issued.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) general policy against conferring a benefit on a corporation 173
Tax Topics - Income Tax Act - 101-110 - Section 110.6 - Subsection 110.6(7) - Paragraph 110.6(7)(b) acquisition by Holdco of discretionary dividend shares of Opco at undervalue could engage s. 110.6(7) application to Opco commons 200

7 May 2012 2010 CALU Roundtable, 2012-043566 -

conferral of benefit under premium sharing arrangement

Holdco, and its subsidiary Opco, enter into a split-dollar insurance arrangement. They "purchase together permanent life insurance policy on the life of the key man," and agree that they will jointly make the beneficiary designations on the policy so that Holdco will be the owner of the cash surrender value of the policy, and will be entitled to the death benefit attributable to the cash surrender value of the policy; and Opco will be entitled to the death benefit attributable to mortality gain and not that portion attributable to the cash surrender value of the policy. They further agree that each will fund that portion of premiums under the policy relating to that corporation's respective interest in the policy. CRA stated:

CRA has consistently expressed the view that where a life insurance policy is co-owned by a corporation and its shareholder (corporation or individual) pursuant to a split dollar arrangement or other shared ownership arrangement, there is a potential for the corporation to confer a benefit on that shareholder through the premium sharing arrangement. Where the premium paid by the shareholder is less than that which would be paid for comparable rights available in the market under a separate insurance policy, the corporation may be viewed as having conferred a benefit to the shareholder that could result in a shareholder's benefit for the purpose of subsection 15(1) of the Act.

7 October 2011 Roundtable, 2011-0407291C6 F - Group Life Insurance Policy

s. 15(1) could possibly apply where a professional corporation pays the premiums, and is designate the beneficiary, of a policy in name of professional

Professionals practising through a professional corporation hold a group term life insurance certificate as an insured, for which the policyholder is a professional association of which the insured is a member. They transfer the insurance certificate to their corporation so that it pays the premiums and receives the insurance proceeds on their death.

If the certificate continued to be issued in the name of the individual member of the professional association but the corporation paid the premiums and was designated as the beneficiary of the insurance proceeds, would there be a s.15(1) benefit? CRA responded:

It is possible that the transactions described in the question may be carried out for reasons other than business reasons, or in other words for personal reasons (including reducing the tax burden on individuals). It is possible that subsection 15(1) is applicable, depending on the facts.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 89 - Subsection 89(1) - Capital Dividend Account - Paragraph (d) - Subparagraph (d)(ii) CDA addition for receipt of proceeds of policy on life of shareholder 216

23 January 2012 External T.I. 2011-0409671E5 F - Propriété superficiaire

benefit if building constructed at corporation’s expense for business purposes becomes shareholder’s property by accession

Corporation A erected, at its expense and for exclusive use in its transport business, a detached garage on the land on which the principal residence of its individual shareholder (the “Taxpayer”) is located. The land subjacent to the garage is leased to it by the Taxpayer. After indicating that Corporation A would be entitled to claim capital cost allowance ("CCA") only if it held the right of superficies to the garage (i.e., by deed it was agreed that the Taxpayer would have no right of accession to the garage), CRA went on to indicate:

[I]n the event that the Taxpayer owns the garage, the garage construction costs are incurred by Corporation A and the application of subsection 15(2) cannot be clearly demonstrated by the parties, we are of the view that a taxable benefit could be conferred on the Taxpayer by Corporation A by virtue of subsection 15(1).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 54 - Principal Residence - Paragraph (e) land leased to corporation for business use not part of principal residence 152
Tax Topics - Income Tax Regulations - Regulation 1102 - Subsection 1102(1) - Paragraph 1102(1)(c) individual shareholder not entitled to claim CCA on building constructed by the corporation for use in its business even if where taxpayer owns it 154
Tax Topics - General Concepts - Ownership whether tenant had Quebec right of superficies to garage erected by it determined whether it was its property 89
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Depreciable Property building erected by corporation on shareholder’s land not depreciable property unless shareholder renounces right of accession 213

7 October 2011 Roundtable, 2011-0413281C6 F - Avantage à un actionnaire et assurance-vie

s. 15(1) benefit where corporation switches the life insurance policy beneficiary to a shareholder may not be based on premiums paid if death impending

What is the value of the benefit under s. 15(1) where a corporation changes the beneficiary of a life insurance policy on the life of its shareholder (Mr. A) from its subsidiary to the spouse of Mr. A, and Mr. A does not have more than a few months to live? CRA responded:

[D]epending on the circumstances, the CRA may consider the amount of premiums that would be payable if Shareholder A entered into a new life insurance policy at the time of the change in beneficiary, the fair market value of the insurance policy or the total amount that the insurer will pay by virtue of the policy.

11 February 2011 External T.I. 2010-0360001E5 - Shareholder benefit - single purpose corporation

corporate aircraft used by shareholder of singe-purpose corporation

Does a subsection 15(1) shareholder benefit result from the personal use and enjoyment of an airplane held by a single purpose corporation? CRA stated:

At Question 27 of the Round Table…at the 2008…APFF…Conference…CRA stated:

  • When a single-purpose corporation owns a helicopter or another property which is used only for the personal purposes of the shareholder, the CRA will examine each situation on a case-by-case basis. It is possible, depending on the circumstances, that at a particular time, no benefit is conferred on a shareholder pursuant to the application of subsection 15(1) of the ITA, but such is not necessarily always the case.

CRA's response was consistent with the "imputed rent" method where the amount of the benefit determined under that method is nil because the shareholder personally finances the entire acquisition cost of a corporation's sole property and assumes all other expenses related to its use. Conversely…in document 2004-008679 about a luxury building…CRA indicated… that "if a luxury building was made available to a shareholder of a single-purpose corporation and this shareholder had financed 100% of the cost of acquiring the corporation's building through an interest free loan to the corporation and paid all the costs of operating the building, the shareholder could nonetheless be subject to a taxable benefit pursuant to subsection 15(1) I.T.A. if the fair market value of the building exceeds its acquisition cost."

6 December 2011 TEI Roundtable Q. 5, 2011-0427001C6 - 2011 TEI Q#5 - Distributions from Foreign Corp.

share premium

S. 15(1) will not apply to a distribution of a share premium of a foreign affiliate if it is a pro rata distribution governed by draft s. 90(2).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 90 - Subsection 90(3) 2-step approach 142

24 November 2011 External T.I. 2011-0416791E5 F - Shareholder Benefit

payment by Opco of whole life insurance premiums on policy of which it is beneficiary, but sole shareholder is holder, generates s. 15 benefit – but not policy loan advance

Opco is the beneficiary of a universal life insurance policy (the "Policy") on the life of its sole shareholder, Mr. A, who is the policyholder. Opco pays the premiums on the Policy. A policy loan is made by the insurer to Mr. A. Is there a shareholder benefit?

CRA indicated that the payment of the premiums gave rise to s. 15(1) benefits, but not the advance of the policy loan.

23 June 2011 External T.I. 2011-0397881E5 - 149(1)(l) Entity - Use of Land by Shareholders

conferral on NPO member

In the case of a corporation to which s. 149(1)(l) applied (non-profit corporation for recreation or pleasure), use by a shareholder of corporate property, for less than fair market value of the use, might be a taxable benefit under s. 15(1). If so, then the value of the benefit is the difference between such fair market value and the consideration paid by the shareholder.

Memorandum TPM-03 "Downward Transfer Pricing Adjustments Under Subsection 247(2)," 20 October 2003

The Minister may decide not to exercise his discretion under s. 247(10) where a Canadian company requests a decrease in the transfer price of sales to a non-arm's length non-resident without repatriation, and s. 15(1) does not apply to the amount. ("This situation may be considered abusive because the Canadian taxpayer has turned an otherwise taxable receipt of monies into a non-taxable amount.") Conversely, when a Canadian parent company requests and receive a decrease in the transfer price of sales to a non-resident subsidiary without repatriation, this is not considered abusive, because s. 15(1) would apply and offset the downward adjustment.

30 August 2004 External T.I. 2003-000135 -

The only significant asset of FA2 is a loan receivable of $100 owing by its parent, FA1, which is a wholly-owned foreign affiliate of Canco. When the $100 debt is extinguished for less than its principal amount on a winding-up of FA2 into FA1, fapi is realized by FA1 by virtue of ss.15(1) and (1.2) assuming that FA2 does not actually carry on a business and given that the benefit conferred by FA2 on FA1 is a direct result of the settlement of the $100 note and not of the redemption or cancellation of the shares of FA2 on its dissolution. To the extent of the inclusion under s. 15(1), there would be a corresponding reduction in any "forgiven amount" for s. 80 purposes (provided that the $100 note was not considered to have been used by FA1 for a business use as a result of the application of s. 95(2)(a)(ii)(D)).

2003 Ruling 2002-017470

A great-grandchild foreign subsidiary ("Dco") of a Canadian public corporation ("Aco") and a great-grandchild foreign subsidiary of Aco ("Fco") held through another chain of corporations each hold ownership interest ("quota") in another foreign affiliate of Aco ("Eco"). The two quota holders of Eco agree that the principal assets of Eco will be assigned to a newly-incorporated corporation in the same foreign jurisdiction ("Jco") for no consideration; but that contemporaneously with the creation of Jco and the assignment of property of Eco to Jco, the capital account and retained earnings of Eco will be reduced and added to the capital and retained earnings of Jco (which is owned by Dco and Fco in the same proportions as they owned, and continue to own, Eco).

Ss.15(1), 56(2) and 246(1) do not apply.

26 March 2003 External T.I. 2001-010531 -

Respecting the situation where an interest-bearing debt owing by one wholly-owned subsidiary to another wholly-owned subsidiary is exchanged for non-interest bearing debt with a term of two years, CCRA commented: "Generally, where a debtor corporation is in financial difficulty such as in the situation you described, it is our view that the conversion of an interest-bearing intercorporate loan to a non-interest-bearing intercorporate loan would generally not result in the application of subsections 15(1), 56(2) or 56(4) of the Act to the parent corporation provided the new debt has the same principal amount as the old debt, the corporate shareholder receiving the funds is or will be in a position to repay the loan or to provide reasonable security for repayment, and the loan is bona fide."

3 January 2003 External T.I. 2002-014396 -

Respecting the question as to the consequences of a corporation that had carried on business for 16 years without issuing any shares then issuing one share, the Directorate indicated that, subject to an appropriate court rectification order being obtained, "the issue of a share of a corporation for a nominal amount at a time when the fair market value of that share is greater than a nominal amount will generally be considered to have resulted in a benefit being conferred on the purchaser of share, even if that purchaser is the first subscriber ... ."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 52 - Subsection 52(1) share subscription at under-value 61

22 February 2002 Internal T.I. 2001-010186 -

Discussion of whether s. 15(1) or 56(2) might apply to a loan to a sister corporation.

6 February 2002 External T.I. 2001-010560 -

In response to a question as to whether expenses incurred in response to a takeover bid or sale would give rise to a shareholder benefit when incurred by a public corporation, the Agency stated that:

"The question of whether corporate-paid expenses constitute a shareholder's benefit under subsection 15(1) depends on whether the expenses were incurred primarily for the benefit of the shareholders, which is a question of fact to be determined on a case-by-case basis."

S.56(2) would not normally be considered.

2001 Ruling 2001-010588 -

A Canadian controlled private corporation ("Parent") and its U.K. subsidiary ("U.K. Sub") agree that UK Sub will pay to Parent an amount equal to the stock option benefits enjoyed by U.K. Sub's employees on the exercise of options to acquire shares of Parent. This amount is not included in Parent's income under s. 15(1) or 12(1)(x).

27 November 2001 External T.I. 2001-009686 -

Respecting the CCRA position on single purpose corporations, it stated that "where each shareholder did not contribute their pro-rata share of the funds required to acquire the particular U.S. residential property (either by equity or non-interest bearing loan), the corporation would not qualify as a single purpose corporation. In addition, there is a requirement that "the corporation that acquired the particular U.S. residential property ... do so with funds provided solely by the shareholder(s) and not by virtue of the shareholder's holdings in that corporation or those of a related person and any other corporation".

9 October 2001 External T.I. 2000-003491 -

reimbursement by sub on stock option exercise

Where a subsidiary reimburses its parent for the difference between the fair market value of shares of the parent company on the date of exercise of options on the shares of the parent previously granted to employees of the subsidiary, and the amount paid to the parent company by the employees who acquire the shares, there will be no inclusion in the income of the parent under ss.15(1), 12(1)(x) or 90 for the amount of the payment, provided that the payment is in respect of options granted after the arrangement was in place, or was in respect of the increase in the stock option benefit that, in the circumstances, may reasonably be considered to have arisen after the arrangement went into effect on options that were granted prior to the arrangement.

6 November 2000 Internal T.I. 2000-0050427 - PRIVATE AIRCRAFT

"extensive" personal use is over 33%

A company aircraft of the majority shareholder ("Mr. X") of a Canadian-controlled private corporation was used to fly Mr. X, his family and several business associates to a ski lodge in Western Canada where they went heli-skiing. After finding tht deductibility of the expenses was denied by s.18(1)(l), CRA stated:

IT-160R3 provides guidance on this situation in paragraphs 9 to 11. The benefit to a shareholder-employee is generally considered to be derived in his or her capacity as shareholder and is taxable as a shareholder's benefit under subsection 15(1) if:

  • (a) the shareholder-employee controls the corporation or is one of a related group that controls the corporation or any affiliated corporation, and
  • (b) there is extensive use of the aircraft for personal purposes by the shareholder-employee or, because of the latter's position, by relatives or friends of the shareholder-employee.

What constitutes "extensive use", for purposes of paragraphs 9 and 10 of IT-160R3, depends on the facts and circumstances in each case. As a general guideline, personal use amounting to one-third of the total flying time will be regarded as "extensive."

2000 Ruling 2000-000185 -

Waiver of dividends on exchangeable shares did not result in the application of benefit provisions.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 15 - Subsection 15(1) 14

1999 Ruling 990259

Canadian employees of a Canadian subsidiary of a foreign parent had "subscription rights" to acquire unlisted ordinary shares of the foreign parent. The subscription rights plan provided that at the same time the employee was granted a right she would acquire a non-interest bearing bond of the parent at an appropriate discount, and enter into put and agreements with a non-resident corporation ("Putcallco") under which the employee could cause Putcallco to acquire the employee's foreign parent shares at their fair market value at the time of exercise of the rights acquisition (as determined under a formula), and Putcallco could acquire those shares at their fair market value in the event the individual ceased to be an employee. The foreign parent and the Canadian subsidiary had agreed that when a subscription right was exercised by an employee, the Canadian subsidiary would be obliged to pay to the foreign parent the amount by which the fair market value of the shares acquired by the employee exceeded the exercise price.

The granting by the Canadian subsidiary to the employees of the right to surrender their subscription rights to it for a cash amount equal to the difference between the fair market value of a foreign parent share (determined on the same formula basis) and the exercise price would not result in a disposition under s. 7(1)(b) or result in a conferral of a benefit by the Canadian subsidiary on the foreign parent under s. 15(1).

2000 Ruling 2000-000185 -

Ruling that s. 15(1) would not apply to a waiver of dividends on exchangeable shares.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 15 - Subsection 15(1) 15

2 December 1999 Internal T.I. 1999-0010070 - Guarantee fee

Where a U.S. subsidiary guarantees debts of its Canadian parent without charging a guarantee fee, a benefit under s. 15(1) may apply. Where s. 15(1) so applies, it is considered to be a more specific provision that s. 247(2), so that no amount would be deemed to be paid or credited pursuant to s. 214(15)(a) and, consequently, no Part XIII tax would be exigible.

1999 Ruling 983014

An interest-free loan made by a controlled foreign affiliate (that was not resident in a designated treaty country) to its indirect wholly-owning Canadian parent did not give rise to an imputed benefit under s. 15(1) to the parent.

14 January 1999 External T.I. 5-982855 -

Where shares bearing a non-cumulative dividend of 10% are exchanged on an s. 86 reorganization for shares bearing a non-cumulative dividend of 15%, the shareholder with the increased dividend rate will be considered to have received an s. 15 benefit, and other shareholders may be considered to have received fair market value proceeds under s. 69(1)(b).

2 May 1997 T.I. 970821

Where special shares of a wholly-owned subsidiary are converted into a nominal number of common shares of the subsidiary having a fair market value substantially less than the fair market value of the special shares before the conversion, RC generally will not consider applying s. 15(1).

27 November 1996 External T.I. 5-962063 -

Where a corporation gives a remainder interest in ecologically sensitive property to a heritage or conservation organization and retains a life interest pur autre vie (on the joint lives of its shareholders and their children), a benefit under s. 15(1) or 56(2) would be considered to have been conferred by it.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 43.1 54

27 June 1995 External T.I. 5-932476 -

s. 15(1)(c) did not apply to a rights offering where the majority shareholder of the corporation agreed to purchase any of the rights not purchased by the other shareholders pursuant to the first stage or second stage of subscription pursuant to the rights offering.

13 February 1995 T.I. 950323

The Department's administrative concession respecting the holding of a U.S. residential property by a corporation only applies where all seven conditions stipulated by the Department are satisfied. Accordingly, the administrative concession is not available with respect to Canadian real estate. In any event, the Department is reconsidering the policy in light of the proposed Protocol to the Canada-U.S. Convention.

94 C.P.T.J. - Q. 26

Where a corporation reimburses its shareholder for specific automobile expenses incurred in the course of his employment by crediting amounts to the shareholder's loan account with the corporation, and RC then successfully challenges the deductible amount of the automobile expenses, the shareholder will be assessed with a benefit pursuant to s. 15(1) rather than RC allowing a correction to the individual shareholder loan account.

26 July 1994 External T.I. 5-940251 -

"The Donovan decision would appear to support the position that to the extent any imputed interest reduces the amount of a benefit under subsection 15(1), it should be included in the shareholder's income under paragraph 12(1)(c) ..."

20 June 1994 T.I. 940553 (C.T.O. "Dividend Reinvestment and Stock Option Plans")

The positions set out in three technical interpretations (28 March 1991 - 910235; 8 November 1991 - 912013; and 5 November 1991 - 912999) respecting dividend reinvestment plans and stock option plans still represent the Department's practice.

16 May 1994 T.I. 940456 (C.T.O. "Court Ordered Corporate Distribution")

A court order directing a corporation to pay a "dividend" to an inactive shareholder in order to compensate him for the undue depletion of the corporation's equity caused by excessive management fees paid to the other shareholders in previous years would not give rise to a dividend unless the payment "represented a dividend duly declared by the Board of Directors to be payable on a pro rata basis to the owners of the shares of a particular class of stock". To the extent the payment in question was not salary, a dividend or a reduction in paid-up capital, it would be included in income under s. 15(1).

27 March 1994 T.I. 933322 (C.T.O. "Shareholder Benefit")

Where a taxpayer has transferred property to a corporation pursuant to s. 85(1) and has received consideration in excess of the fair market value of the property transferred, s. 85(2.1) in its amended form will apply before subsection 84(1). Accordingly, to the extent that the excess consideration exceeds the paid-up capital of the shares received by the taxpayer on the transfer, such amount will no longer be taxed as a deemed dividend but will be taxed as a shareholder benefit under s. 15(1).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 85 - Subsection 85(2.1) 83

25 March 1994 T.I. 933550 (C.T.O. "Interest Reduced 15(1) Benefit")

The Department's administrative position respecting "single purpose corporations" only applies to a Canadian corporation that holds U.S. real property on behalf of its shareholders, and does not apply to a U.S. corporation holding a yacht on behalf of its direct or indirect Canadian individual shareholder.

If the shareholder has provided interest-free loans to the corporation in order to finance the acquisition of the property, RC is not prepared to extend a benefit offset as was done on a different set of facts in the Youngman case (90 DTC 6322).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 246 - Subsection 246(1) 80

8 March 1994 Internal T.I. 73-933092 -

In a situation where a corporation made improvements to a property owned by its shareholder, RC discusses the quantification of the resulting benefit to the shareholder, notes that it is immaterial whether the corporation intended to confer a benefit on the shareholder, and notes that if the improvements could realistically be removed and re-used, there might not be a benefit on the authority of the Ginter case (77 DTC 5274).

93 C.P.T.J. - Q. 37

S.15(1)(c) requires that the corporation confer identical rights per common share on each common shareholder. Furthermore, if at the time the rights are issued, it is known that certain shareholders will not exercise their rights or will not be entitled to exercise their rights, the exception in s. 15(1)(c) will not apply.

The availability of the exemption under s. 15(1)(c) will not preclude other provisions, such as ss.6, 7, 245 and 246 applying. However, where all shareholders, including those who are not employees, are given the identical right per common share to acquire additional shares, the rights given to employee-shareholders would not ordinarily be considered to have been received in respect of employment.

9 July 1993 T.I. 930660 (C.T.O. "Whether Corporation can make Donation Rather than Estate"; Tax Window, No. 33, p. 6, ¶2641)

Where a corporation makes a charitable donation on behalf of a deceased shareholder, there will be a shareholder benefit which (on the assumption that the estate was obligated to make the donation before it distributed property to the beneficiaries) would be included in the income of the estate rather than the beneficiary.

7 April 1993 Memorandum (Tax Window, No. 31, p. 6, ¶2513)

A standard distress preferred share ruling is that no amount will be included in the income of Distressco pursuant to ss.15(1) and 246(1) solely by virtue of the fact that interest will not be paid or payable by Distressco to Newco on the debt.

13 January 1993 T.I. 922191 (November 1993 Access Letter, p. 500, ¶C76-077)

Where a loan is received by an employee of a corporation who owns all its shares, RC will consider that the loan was not contracted qua employee, except under exceptional circumstances.

There could be a taxable benefit where the corporation guarantees a bank loan made to an employee or a shareholder.

92 C.R. - Q.51

The requirements of s. 15(1)(c) will, in most instances, be complied with where under a poison pill arrangement shareholders are granted the right to acquire additional shares of the company at some fraction of market value.

92 C.R. - Q.32

Where an individual causes two wholly-owned corporations, one of which is virtually insolvent, to be amalgamated with each other, RC ordinarily will not seek to apply s. 15(1) notwithstanding that a loan owing to the individual by the insolvent corporation will increase in value as a result of the amalgamation. This position is premised on the assumption that there is a corresponding decrease in the value of the shares held by the individual.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 87 - Subsection 87(4) 55

October 1992 Central Region Rulings Directorate Tax Seminar, Q. G (May 1993 Access Letter, p. 230)

The unreasonable portion of salaries or bonuses paid to non-resident shareholder-managers will be subject to Part XIII tax under ss.15(1), 214(3)(a) and 212(2).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 212 - Subsection 212(2) 22

19 June 1992 External T.I. 5-921435 -

RC's policy on single-purpose corporations will cease to apply where the corporation disposes of the property notwithstanding that it realizes a capital gain on the disposition.

8 April 1992 T.I. (913412 (March 1993 Access Letter, p. 83, ¶C180-135; Tax Window, No. 18, p. 10, ¶1847)

The non-resident shareholders of a non-resident corporation which allows them to use a Canadian vacation property rent-free will be imputed a benefit under ss.15(1) and 214(3)(a).

Locations of other summaries Wordcount
Tax Topics - Treaties - Income Tax Conventions - Article 10 65

6 April 1992 T.I. (Tax Window, No. 18, p. 3, ¶1851)

S.15(1) will not generally apply to impute an interest benefit on a non-interest bearing note owing by a parent to its subsidiary since interest on shareholder debt is imputed under s. 80.4(2), which does not apply in respect of indebtedness owing by a corporate shareholder resident in Canada.

18 March 1992 T.I. (Tax Window, No. 18, p. 4, ¶1816)

Where a Canadian subsidiary guarantees a loan obtained by its U.S. parent from the U.S. bank, the Canadian subsidiary is performing a service to its U.S. parent the value of which is a taxable benefit under s. 15(1), notwithstanding that there might be no benefit under s. 15(1) if the U.S. parent had instead pledged the shares of the Canadian subsidiary as security for the loan.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 69 - Subsection 69(3) 61

1992 Prairie Provinces Tax Conference, Revenue Canada Round Table, Q. 16 (October 1992 Access Letter, p. 41)

Under a split-dollar life insurance arrangement, the benefit to be included in an employee/shareholder's income in a particular taxation year is the amount by which the premium cost for equivalent term coverage exceeds the premiums paid by the individual under the policy.

91 C.R. - Q24

It is a question of fact whether a shareholder receives the benefit from a corporation's property being used as collateral security for a debt of the shareholder. One method of calculating the benefit is to compare the difference between the interest rate charged with or without the collateral security.

91 C.R. - Q.16

Where convertible preference shares were acquired for their fair market value, their subsequent conversion into common shares at a time when the common shares had a fair market value greater than the redemption amount of the preference shares, would not ordinarily result in the excess amount being treated as a benefit.

91 C.R. - Q.30

Where a Canadian subsidiary guarantees the loan obligations of its foreign parent, the determination of the amount of benefit is a question of fact.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 69 - Subsection 69(3) 46

30 November 1991 Round Table (4M0462), Q. 3.2 - Inter-Company Loan (C.T.O. September 1994)

RC "follows the long-established practice of not applying subsection 15(1) of the Act to inter-company loans made in the normal course of carrying on the business of two corporations. However, if the loan is not a bona fide loan, it could be treated differently".

8 November 1991 T.I. (Tax Window, No. 12, p. 8, ¶1561)

S.15(1) will not be applied to shares issued under a dividend reinvestment plan for at least 95% of their fair market value (based on an average market price over a short period such as five days).

September 1991 Memorandum (Tax Window, No. 10, p. 22, ¶1482)

Where convertible preferred shares with a fixed redemption amount are converted to common shares having a fair market value higher than the redemption amount, there will be no s. 15(1) benefit if at the time the conversion ratio was established the fair market value of the preferred shares was equal to the fair market value of the common shares and no related parties were involved in the transaction.

21 August 1991 T.I. (Tax Window, No. 8, p. 16, ¶1399)

Where each holder of common shares of a corporation is given the right to purchase a unit consisting of a common share and a warrant to purchase another common share, both the right and the warrant are rights described in s. 15(1)(c).

20 September 1991 T.I. (Tax Window, No. 9, p. 18, ¶1465)

Where an individual controls two corporations both carrying on business in Canada and in the course of those businesses one corporation makes a bona fide loan to the other, there is no shareholder benefit even if the loan does not bear interest. The forgiveness of the loan due to the failure of the business of the borrower also will not cause s. 15(1) (or s. 56(2)) to apply.

19 July 1991 T.I. (Tax Window, No. 7, p. 8, ¶1363)

Where a property provided by a corporation to its shareholder is so expensive or luxurious that there is no normal rental market, the taxable benefit will be calculated by adding all maintenance costs incurred by the corporation and a return on the greater of the cost or fair market value of the property computed at the interest rate prescribed for purposes of s. 80.4, and deducting any amounts paid by the shareholder to the corporation.

10 July 1991 Memorandum (Tax Window, No. 5, p. 21, ¶1340)

The amount of the benefit will be reduced in respect of an interest-free loan made by the shareholder to the corporation only where that loan is directly related to the property in respect of which the benefit is being assessed.

4 June 1991 T.I. (Tax Window, No, 4, p. 26, ¶1277)

A shareholder of a corporation who directs the corporation to make a loan to another corporation which is not in a position to repay the loan or provide reasonable security may, depending on the circumstances, have received a taxable benefit if he had an interest in the borrower corporation.

10 May 1991 T.I. (Tax Window, No. 3, p. 26, ¶1229)

RC will not apply its favourable assessing policy regarding single-purpose corporations holding personal-use properties if the corporation disposes of the personal use property and acquires another property.

8 May 1991 T.I. (Tax Window, No. 3, p. 27, ¶1245)

Where an individual resident in the U.S. charges an excessive rent for the rental of a building owned by him to an indirect Canadian subsidiary, RC will generally not apply ss.15(1), 56(2), 214(3) and 246(1) to the individual or the immediate U.S. parent of the Canadian subsidiary where the benefit has been included in the income of the non-resident individual and has been subject to tax in Canada.

28 March 1991 T.I. (Tax Window, No. 1, p. 8, ¶1177)

RC is prepared to consider requests for advance income tax rulings where some shareholders are excluded from participation in a dividend reinvestment plan of a public corporation. However, Revenue Canada should not be favourably inclined where the plan includes terms which may result in the acquisition of shares by the public corporation in the open market for the purpose of being resold to shareholders at a lower price.

1 February 1991 T.I. (Tax Window, Prelim. No. 3, p. 27, ¶1115)

Where the taxpayer, who holds all the preference shares of a holding company which in turn holds all the shares of Opco arranges to borrow money and lend it directly to Opco at no interest, there will be no conferral of a benefit on the holders of the common shares of Holdco (his children).

22 January 1991 T.I. (Tax Window, Prelim. No. 3, p. 6, ¶1102)

The policy on single-purpose corporations does not apply where adult children have incorporated and funded their own corporation to purchase a vacation property owned by their father's corporation on condition that he be granted the right to free access and use of the property during his lifetime. The children's corporation, by granting rent-free use of the property to someone other than its own shareholders, would not meet the first RC condition.

15 October 1990 T.I. (Tax Window, Prelim. No. 1, p. 18, ¶1028)

S.15(1)(c) applies where a corporation confers on all owners of common shares the right to buy a unit consisting of a common share and a common share purchase warrant.

90 C.R. - Q8

RC is not prepared to extend the benefit offset as determined in Youngman beyond the facts of that case.

14 June 1990 T.I. (November 1990 Access Letter, ¶1507)

Listing of the six conditions with respect to a single-purpose corporation holding U.S. real estate.

28 May 1990 T.I. (October 1990 Access Letter, ¶1453)

S.15(1)(c) will not apply where residents of Quebec are excluded from a rights offering in order to avoid having to comply with the requirements of Quebec law that the offering material be in French. However, the position in IT-116R2, para. 2 will be applicable.

10 May 1990 T.I. (October 1990 Access Letter, ¶1452)

The administrative position respecting U.S. condominiums does not apply to other properties, in this case, airplanes.

17 April 1990 T.I. (September 1990 Access Letter, ¶1409)

S.15(1) will not generally apply in respect of intercorporate loans made between two sister corporations and, in general, RC does not require that loans between resident corporations bear interest. However, s. 15(1) would be applicable in circumstances similar to those in the Vine Estate case.

27 March 1990 TI (August 1990 Access Letter, ¶1364)

It would not be practical for RC to extend its administrative practice in IT-169 respecting price adjustment clauses to adjust for values finally determined by the courts.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Effective Date 34

27 March 1990 T.I. (August 1990 Access Letter, ¶1365)

Where a Canadian public company confers on all its common shareholders a right to buy units consisting of shares, and warrants to acquire shares of the corporation, both the "right" and the "warrant" would be considered a right to buy additional shares referred to in s. 15(1)(c). If for some reason s. 15(1)(c) did not apply, then the shareholder would be considered to have received a taxable benefit at the time entitlement to the unit of shares and warrants arose.

23 February 1990 T.I. (July 1990 Access Letter, ¶1340)

An interest-free loan made between two non-profit organizations which are corporations could give rise to an s. 15 benefit in the hands of the shareholders of the recipient corporation.

15 January 1990 T.I. (June 1990 Access Letter, ¶1255)

Discussion of when a benefit is conferred on a shareholder by virtue of his participation in a universal life insurance policy.

11 December 1989 T.I. (May 1990 Access Letter, ¶1208)

With respect to two of the four conditions respecting the holding of U.S. residential property by a corporation: the rent-free use of the property by persons other than the shareholder may indicate that the corporation is not a single purpose corporation; and it does not make any difference if the shareholder pays operating expenses directly or if the shareholder funds the corporation which uses the funds to pay the ongoing expenses.

4 December 1989 T.I. (May 1990 Access Letter, ¶1208)

With respect to the fourth condition for single-purpose corporations holding U.S. residential property, it is intended that the corporation be "a mere conduit, the only 'asset' of which would be the personal-use property, and that all expenses would be directly and immediately passed through to the shareholder". Accordingly, it is inappropriate for the shareholder to provide funds to the corporation in advance.

89 C.R. - Q.24

In determining whether an employee/shareholder is in receipt of a benefit in a particular taxation year under a split dollar life insurance plan, consideration will be given to the premiums paid by the employee/shareholder under the policy and the premium cost for equivalent term coverage.

89 C.R. - Q9

The position in 80 C.R. - Q.20 (respecting Florida condominiums) does not permit the property to be acquired by the corporation on a rollover basis. In addition, earning income of any kind, including rent, would be inconsistent with the condition that the corporation do nothing more than hold the property for the personal use and enjoyment of the shareholder.

17 July 89 T.I. (Dec. 89 Access Letter, ¶1043)

Unacceptable departures from the 1980 Round Table position include: the advancing of funds to the corporation by someone other than the shareholder; the holding of the real estate by a U.S. corporation whose shares are held directly by a Canadian taxpayer; the holding of the real estate by a U.S. corporation whose shares are held by a Canadian corporation; the earning of any rental revenue; the holding of more than one property; the transfer of the property to the corporation on a s. 85(1) roll. However, the holding of the shares of the corporation by two spouses in joint tenancy is acceptable.

ATR-22R (14 April 89)

A favourable ruling is given on an estate-freeze transaction where 100 common shares of the frozen company are issued to father for $1 each, who then gifts those common shares to his 40-year old son.

ATR-36 (4 Nov. 88)

Favourable rulings (but with a refusal to give more than an opinion, in compliance with IT-169, as to the efficacy of a price-adjustment clause) are given for an estate freeze transaction in which:

  1. X transfers his pre-1972 common shareholding in a public company to Holdco in consideration for a promissory note and redeemable retractable non-cumulative shares which cease to be voting on his death and with the usual asset-depletion protections;
  2. a family trust for adult beneficiaries pays $5,000 in subscribing for common shares of Holdco; and
  3. the adult children of Holdco subscribe for non-voting non-cumulative redeemable Class B shares of Holdco for an aggregate subscription price of $50,000 (in order to provide Holdco with the funds to pay dividends on its shares).

88 C.R. - Q.2

Soper has no bearing on the position in 80 C.R. - Q.20, because the four conditions were not fully met.

If part of the purchase price of the U.S. property is funded by way of an interest-free intercorporate loan, this administrative position may not apply, and the issuing of an interest-free loan may result in the receipt of a benefit by the shareholder or a related person.

87 C.R. - Q.33

Although the benefit, when corporate property is made available to a shareholder, will usually be computed by reference to the fair market rental, in the case of luxury residences and yachts, the benefit will usually be computed by taking into account a normal rate of return on the greater of the cost and fair market value of the property, plus operating costs.

ATR-9 (12 May 86)

registered title to the personal residence of the principal shareholder of a corporation had been held by the corporation. The shareholder bore all the expenses of the property. The transfer of the residence to the shareholder at cost would give rise to a s. 15(1) benefit equal to the difference between the fmv of the residence at the time of transfer and its cost, and s. 69(1)(b)(i) would apply to the corporation.

86 C.R. - Q.62

Where a corporation guarantees a bank loan made to a minority shareholder, there clearly will be a taxable event if the corporation is called upon to honour its guarantee. Although there also may be a benefit equal to the difference in rates charged with and without the corporate guarantee, it is unlikely that RC would attempt to assess such a benefit unless there is some evidence that the shareholder is not, from the outset, able to repay the loan.

16 July 1985 Memo 7-4095

payment of withholding on U.S. consent dividend by US corporation a benefit

After noting that "U.S. consent dividends are not dividends received for purposes of section 90, the Directorate stated that "where a U.S. corporation withholds and remits the U.S. consent dividend tax on behalf of a Canadian shareholder, the amount of such U.S. tax so withheld would constitute a benefit conferred on the Canadian shareholder for purposes of paragraph 15(1)(c)… ."

85 C.R. - Q.14

A benefit has been conferred where a corporate property is held solely for the personal use of a shareholder whether or not the shareholder has advanced the purchase price to the corporation.

85 C.T. - Q.53

The exchange of preferred shares having a fair market value less than their redemption amount for a new class of preferred shares having a redemption amount "arguably" equal to that fair market value generally will result in the conferral of a benefit on the common shareholders.

81 C.R. - Q.49

RC will not apply s. 15(1) to a shareholder where a note bearing little or no interest is repaid at its face value provided that the consideration given by the shareholder for the note was equal to its face value.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Fair Market Value - Other 45

81 C.R. - Q.51

RC may seek to impute interest on interest-free intercorporate loans which result in an undue advantage being conferred on the corporate shareholder.

80 C.R. - Q.20

Where a U.S. condominium is held by a Canadian corporation for the occupancy of the corporation's shareholder, a taxable benefit will result where the fair market rental level of the property exceeds the outlays incurred by the shareholder, unless the corporation's only objective, and its only transactions (including the charging of all operating expenses to the shareholder) relate to, the personal use or enjoyment of the shareholder or related individuals.

IT-96R5 "Options Granted by Corporations to Acquire Shares, Bonds or Debentures" under "Shareholder Benefit"

Locations of other summaries Wordcount
Tax Topics - General Concepts - Fair Market Value - Shares 60


Perry Truster, "Taxable Benefits: How Much is Taxable?", Tax For The Owner-Manager, Volume 14, Number 2, April 2014, p. 2

ABC Steel (p.2)

In ABC Steel (74 DTC 1124(TRB))…a shareholder leased property to a corporation. The shareholder caused the corporation to improve the property, in part, with steel he purchased from the corporation. He was charged salvage value only for the steel, which was the amount paid for it by the corporation. He was not charged for indirect overhead nor was he charged a profit component. The court accepted the argument that the work was undertaken during slack periods and the corporation did not incur any expenses that it would otherwise not have made. The court stated that "[i]t seems improbable that a reasonable man would charge himself for actual savings he effected through his own efforts or through a company he controlled" (emphasis added).

Patrick W. Marley, Kim Brown, "Foreign Mergers and 'Demergers' Under Recent Canadian Proposals", Tax Management International Journal, 10 February 2012, Vol 41, No. 2, p. 86

A demerger, which under the foreign corporate law, might be viewed as one stream splitting into two, might not qualify under draft s. 90(2) as a pro rata distribution on a class of shares of the foreign affiliate, with the result that s. 15(1) could apply.

Gordon Funt, Joel A. Nitikman, "FAPI and Debt Forgiveness - Now You See It, Now You Don't", CCH Tax Topics, No. 1724, 24 March 2005.

David Louis, Michael Goldberg, "Life Insurance: Exploring the Corporate Edge - Part II", Tax Topics No. 1682, June 3, 2004, p. 1.

Discussion of using transfer of insurance policy by shareholder to corporation as a means of extracting corporate funds.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 148 - Subsection 148(7) 0

Ramaseder, "Substantial Tax Cost May be Associated with Recreational Properties", Taxation of Executive Compensation and Retirement, November 1991, p. 515.

Crawford, "The Personal Use by a Shareholder of Company-Owned Assets and the Youngman Case", 1990 Conference Report, p. 4:35

Durnford, "Benefits and Advantages Conferred on Shareholders", Canadian Tax Journal, May-June 1984, p. 445.

David A. Ward, "Insurance Funding of Buy-Sell Agreements", 1974 Canadian Tax Journal, p. 484

Discussion of whether split-dollar life insurance arrangements entail the conferral of a shareholder benefit.

Paragraph 15(1)(b)


The Queen v. Sills, 85 DTC 5096, [1985] 1 CTC 49 (FCA)

Where a separation agreement provides that alimony and maintenance payments are payable on a monthly basis, then the alimony and maintenance paid in order to carry out the terms of the separation agreement is received by the payee "pursuant" to the agreement notwithstanding that the payments are not made on time.

Administrative Policy

2013 Ruling 2012-0463611R3 - Foreign Divisive Reorganization


. Canco, a Canadian public company, directly owns a portion of the shares of FA1. FA1 is a controlled foreign affiliate of Canco resident in "Foreign Country" and holding X% of the shares of FA2, which also is a CFA of Canco and resident in Foreign Country. The balance of the shares of FA1 are owned by Forsub2 (resident in Foreign Country2), which is a subsidiary of Forsub (also resident in Foreign Country2) which, in turn, has X% of its voting shares owned by Canco.

Proposed transactions

. In order to establish Newco as a "Finco" for the group:

1) FA2 will pay a dividend of FC$X to FA1, with FA1 lending such amount under the "FA Loans" to other foreign affiliates of Canco (with interest income thereon to be included in FA1's exempt surplus).

2) FA1 will undergo a divisive reorganization (the "Division") for the division of FA1 into two legal entities (FA1 and Newco) under which:

a) Newco will be formed as limited liability corporation under the laws of Foreign Country;

b) Under the deed of formation of Newco, the shares of FA2 (and other property) and liabilities of FA1 will be retained by FA1, while the FA Loans will be assigned by FA1; the legal paid-up capital of the FA1 shares will be reduced, and that of the Newco shares will be increased, on a proportionate basis;

c) By operation of the corporate laws of the Foreign Country, Canco and Forsub2's approval of the Division will result in Canco and Forsub2 becoming the shareholders of Newco and FA1, respectively (and with liability limited to their respective capital contributions).


. In addition to rulings on current law (including the reduction under s. 53(2)(b)(ii) of the ACB of the shares of FA1 held by Canco and Forsub2, and that s. 15(1) or 56(2) did not apply), the following opinions were provided:

  • the assignment of the FA Loans by FA1 will be a pro rata distribution in respect of the shares of FA1 and the amount of the FMV of the FA Loans will be deemed to be a dividend pursuant to proposed s. 90(2);
  • the Division will not result in a reduction to the ACB of the shares of FA1, held by each of Canco and Forsub2, under proposed s. 53(2)(b); and
  • the Division will not result in a shareholder benefit under proposed s. 15(1.4)(e) by virtue of the exception in that provision for dividends.

23 May 2013 IFA Round Table, Q. 2

Canco owns 100% of the shares of FA1 and FA1 owns 100% of the shares of FA2. FA3 is either formed with nominal assets by FA1 or comes into existence as part of the legal division of FA2 into two legal entities pursuant to the corporate laws of the foreign country where FA2 and FA3 are resident. As a result of the reorganization, FA2 transfers some of its assets for no consideration to FA3 and FA3 issues shares to the shareholders of FA2 pro rata based on the number of shares they hold in FA2. As FA1 is FA2's sole shareholder, FA1 becomes the sole shareholder of FA3. The legal paid up capital of the shares of FA2 is reduced by the book value of the transferred assets, and the legal paid up capital of the shares of FA3 is equal to such book value.

CRA agreed that there is a pro rata distribution for purposes of draft s. 90(2) in this situation so that the exception under s. 15(1)(b) for dividends would apply. CRA further indicated that it would come to the same conclusion if a Canadian corporation were the holding company rather than a non-resident company (FA1).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 90 - Subsection 90(2) 197


Durnford, Toope, "Spousal Support in Family Law and Alimony in the Law of Taxation", Canadian Tax Journal, 1994, Vol. 42, No. 1, p. 1.