Any benefits sole shareholder and director received were not compensation for services rendered

Tax - Income tax - Employment income

K Ltd. was wholly owned by Z and Z was sole shareholder and director. K Ltd. had some real estate holdings in addition to its previous investments in stocks and bonds and had no employees. In 2016, Canada Revenue Agency examined payroll records and made conclusions about portion of claimed business expenses of K Ltd.. These were that K Ltd. had claimed motor vehicle expenses for Z’s personal vehicles and that Z failed to reimburse K Ltd., that K Ltd. had claimed business expenses for Z’s personal expenditures and that Z had received taxable employment benefit for expenses mentioned. Minister of National Revenue reassessed Z for 2012, 2013 and 2014 taxation years for unreported income arising from alleged taxable employment benefits. Minister also reassessed K Ltd. for Canada Pension Plan contributions on taxable benefits for 2012, 2013 and 2014 taxation years and for late-filing penalties in each taxation year for failure to file T4 information returns. Z and K Ltd. appealed. Appeals allowed. No evidence of contract of service was led at trial. Z was not employee of K Ltd.. Under Canada Pension Plan, definition of “employee” includes “officer” and definition of “office” was identical to definition of “office” under Income Tax Act. None of items in issue were payments to Z for activities in performance of his office. Z was not in position for pay with K Ltd.. Any benefits Z received from K Ltd. were not compensation for services rendered. There was no evidence that Z had entitlement to fixed or ascertainable stipend or remuneration. Z did not receive benefits from K Ltd. pursuant to s. 6(1) of Act.

Kootenay Management Consultants Ltd. v. M.N.R. (2019), 2019 CarswellNat 1548, 2019 CarswellNat 1704, 2019 TCC 97, 2019 CCI 97, Ronald MacPhee J. (T.C.C.).

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