Corporation conferred benefit on taxpayer by making mortgage payments for his personal residence

Tax court of Canada | Tax | Income tax | Business and property income

Taxpayer was sole shareholder and directing mind of corporation, as father withdrew from company business of residential property rentals. Mortgages on taxpayer’s and on father’s personal residential properties were recorded in corporation’s financial statement as long-term debt. Father remortgaged property and paid out prior mortgage, with corporation issuing cheques within days of repayment which included one of $50,000 made out to taxpayer. Taxpayer also obtained new mortgage and discharged one held by corporation. In audit, CRA took view that corporation conferred benefits on taxpayer by making payments on both mortgages. Corporation claimed interest expenses relating to mortgages and deducted wage expenses for dividends it issued to taxpayer. Minister reassessed taxpayer and corporation under Income Tax Act, including by adding mortgage payment amounts into taxpayer’s income as shareholder benefits and imposing gross negligence penalties. Taxpayer and corporation appealed. Taxpayer’s appeal allowed in part; corporation’s appeal dismissed. Section 15(1) of Act was not broad enough to capture mortgage payments made by corporation on father’s property. This conferred benefit on father who was not shareholder at relevant time. Corporation did confer benefit on taxpayer by making mortgage payments for his personal residence. CRA only audited taxpayer for two of three taxation years at issue, assuming that corporation made mortgage payments in same amount during last year but amount for last year was only $4,840.02 as corporation ceased making mortgage payments once taxpayer discharged mortgage. Amounts of shareholder benefit included in taxpayer’s income would be reduced to $14,525, $14,521, and $4,840.02.

Struck v. The Queen (2017), 2017 CarswellNat 2534, 2017 CarswellNat 8319, 2017 TCC 94, 2017 CCI 94, Valerie A. Miller J. (T.C.C. [Informal Procedure]).

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