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Federal Tax - Taxable Benefit. Laliberté v. Canada
In Laliberté v. Canada (Fed CA, 2020) the Federal Court of Appeal the issue was whether a space trip (literally) was a taxable shareholder benefit under s.15 and 246(1) of the Income Tax Act, which are quoted here:15 (1) Where at any time in a taxation year a benefit is conferred on a shareholder, or on a person in contemplation of the person becoming a shareholder, by a corporation otherwise than by […] the amount or value thereof shall, except to the extent that it is deemed by section 84 to be a dividend, be included in computing the income of the shareholder for the year.
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246(1) Where at any time a person confers a benefit, either directly or indirectly, by any means whatever, on a taxpayer, the amount of the benefit shall, to the extent that it is not otherwise included in the taxpayer’s income or taxable income earned in Canada under Part I and would be included in the taxpayer’s income if the amount of the benefit were a payment made directly by the person to the taxpayer and if the taxpayer were resident in Canada, be
(a) included in computing the taxpayer’s income or taxable income earned in Canada under Part I for the taxation year that includes that time; […] [32] In the present case, the Tax Court adopted the same analysis for both subsections 15(1) and 246(1) of the ITA, which the parties concur was the appropriate approach.
[33] The case law recognizes that the framework for analyzing whether a benefit has been conferred under subsection 15(1) of the ITA involves three steps: determining whether a benefit has been conferred on the shareholder qua shareholder; determining what precisely the benefit is; and determining the value of that benefit to the shareholder by asking what the shareholder would have had to pay for it had he or she not been a shareholder (see, for example, Vern Krishna, The Fundamentals of Canadian Income Tax, Vol. 2 (Toronto: Carswell, 2018), ch. 7 at s. 3 (electronic service); Canada v. Fingold, [1998] 1 F.C. 406, 219 N.R. 369 (leave to appeal refused, 227 N.R. 150 (note) 26 February 1998) (Fed. C.A.) at paras. 13-14 [Fingold]; Pillsbury Canada Ltd v. Minister of National Revenue, [1964] C.T.C. 294, [1965] 1 Ex. C.R. 676 (Can. Ex. Ct.) at paras. 18-22 [Pillsbury]; Youngman v. Canada, [1990] 2 C.T.C. 10, 109 N.R. 276 (Fed. C.A.) at paras. 18-19 [Youngman]; Arpeg Holdings Ltd. v. Canada, 2008 FCA 31, 372 N.R. 363 at para. 21).
[34] In the seminal case of Pillsbury (interpreting the predecessor to subsection 15(1), subsection 8(1)(c) of the Income Tax Act, R.S.C. 1952, c. 148), the Exchequer Court highlighted that the requisite inquiry is inherently factual. It noted at paragraph 20 that a benefit is not conferred where a corporation "“enters into a bona fide transaction with a shareholder”". However, transactions that are merely "“devices or arrangements for conferring benefits or advantages on shareholders qua shareholders”" do qualify, and the distinction between the two is a factual determination (Pillsbury at para. 21). The Court in Pillsbury offered further guidance on the meaning of "“confer”", which highlights the factual nature of the analysis (at para. 22):[…] There must be a “benefit or advantage” and that benefit or advantage must be “conferred” by a corporation on a “shareholder”. The word “confer” means “grant” or “bestow”. Even where a corporation has resolved formally to give a special privilege or status to 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. If this be so, it must equally be a question of fact in each case where the Minister contends that what appears to be an ordinary business transaction between a corporation and a shareholder is not what it appears to be but is in reality a method, arrangement or device for conferring a benefit or advantage on the shareholder qua shareholder. [35] This Court adopted the Exchequer Court’s analysis in respect of subsection 15(1) of the ITA in several cases, including Youngman, Fingold, and Chopp v. Canada, 1997 CanLII 5718 (FCA), [1998] 1 C.T.C. 407, 221 N.R. 185 (Fed. C.A.) [Chopp]. In Youngman, this Court also held that subsection 15(1) of the ITA does not apply if the taxpayer, were he or she not a shareholder, would have received the same benefit from the corporation in the same circumstances (at paragraph 18). Additionally, the benefit conferred must be real and not a "“legal fiction”" (Colubriale v. Canada, 2005 FCA 329, 2005 D.T.C. 5609 (Fr.) at para. 28 [Colubriale]); nor can it flow from a mistake that is not in conformity with a company’s established practices (Chopp at para. 8).
[36] Often, as in the instant case, the analysis focusses on whether or not the transaction in question was made for a business or personal purpose. For example, in Fingold, this Court concluded that a condominium that was purchased for a shareholder and used by him both to occasionally entertain business clients and for personal use was not a bona fide business transaction, as the purpose for the acquisition was overwhelmingly personal. This Court thus determined that the corporation had provided a benefit to him qua shareholder (at paras. 19-20).
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[44] While some of the case law does indeed recognize that corporate impoverishment occurs when a shareholder benefit is conferred (see, for example, Del Grande v. R., [1993] 1 C.T.C. 2096, 93 D.T.C. 133 (T.C.C.) at para. 29 and Colubriale at para. 35), the cases do not universally equate such impoverishment with corporate intent and certainly not with a controlling shareholder’s subjective intent. The requisite inquiry is rather highly fact specific, and the factors that are given weight turn on the particular circumstances of each case. In some instances, this Court and the Tax Court have found that a shareholder benefit was conferred without any determination having been made as to the corporation’s intent, as occurred, for example, in Fingold, Pillsbury, and McHugh v. R. (1994), [1995] 1 C.T.C. 2652, 95 D.T.C. 778 (T.C.C.). Conversely, corporate intent is sometimes a highly relevant consideration, as in cases where the alleged benefit resulted from a book-keeping error or other mistake, as occurred, for example, in Robinson v. Minister of National Revenue, [1993] 1 C.T.C. 2406, 93 D.T.C. 254 (T.C.C.) (aff’d 2000 CanLII 14933 (FC), [2000] 2 C.T.C. 236 (F.C.T.D.)).
. Canada v. Bank of Montreal
In Canada v. Bank of Montreal (Fed CA, 2020) the Federal Court of Appeal dealt with an appeal from Canada that there was no 'tax benefit' from certain bank foreign exchange dealings. The government, applying the GAAR (general anti-avoidance rule) assessed that there was a tax benefit.
The Federal Court of Appeal held that there was no gain to the bank (by virtue a reduction of a capital loss), but that it was due to foreign exchange which 'didn't count' for losses:[31] Following the significant amendments made to subsection 39(2) and the addition of subsection 39(1.1) to the Act in 2013, it is now clear that a loss realized on a disposition of shares by a corporation, to the extent that such loss is attributable to a change in the value of a foreign currency relative to Canadian currency, will not be deemed to be a capital loss from the disposition of a foreign currency under subsection 39(2) of the Act. Since these amendments were effective (except with respect to foreign affiliates for whom the amendments were effective earlier) for any gains or losses realized in taxation years that began after August 19, 2011, the interpretation of former subsection 39(2) of the Act will have limited application.
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