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FEDERAL INCOME TAX - Corporations - Shareholder benefits

Tuesday, June 30, 2020 @ 5:49 AM  

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Appeal by the taxpayer from a decision allowing his appeal from assessment in part only and finding he received a shareholder benefit equal to 90 per cent of the cost of his space trip. The appellant, a founder and controlling shareholder of the Cirque du Soleil group of corporations, took a trip to the International Space Station in 2009. Family Holdco invoiced all but $4 million of the cost of the appellant’s space trip to one of the top operating companies in the Cirque du Soleil group, Créations Méandres. Créations Méandres declined to deduct any portion of the trip costs as an expense for income tax purposes. At the time, the Family Holdco was controlled by the appellant and a family trust. The Minister of National Revenue assessed the appellant with a shareholder benefit equal to the cost of the space trip. The appellant appealed the assessment, arguing that the trip was a stunt-type promotional activity for the Cirque du Soleil group and for a charity he founded and thus did not give rise to a shareholder benefit. The Tax Court concluded that the motivating, essential and overwhelmingly primary purpose of the travel was personal. The court found the appellant made the decision to commit the Family Holdco to the trip and that neither he nor the Family Holdco sought to obtain the approval of anyone else in the Cirque du Soleil group before doing so. The appellant argued the Tax Court misconstrued the test for the conferral of a benefit under ss. 15(1) and 246(1) of the Income Tax Act and by imposing an incorrect burden of proof on the appellant to establish the quantum of benefit conferred.

HELD: Appeal dismissed. There was more than an ample factual basis for the Tax Court to have determined that the appellant received a benefit qua shareholder. The Tax Court did not erroneously apply the test for deductible business expenses under s. 18(1)(a) as opposed to the applicable test under ss. 15(1) and 246(1) and focused on whether the appellant’s space trip was a bona fide business transaction or a personal venture. In assessing whether a benefit was conferred, it was open to the Tax Court to consider as a relevant fact the income tax treatment afforded by Créations Méandres’ to the space trip expense. Créations Méandres’ decision to refrain from deducting the expense for tax purposes was relevant to the court’s assessment of whether the trip was a business transaction or personal in nature as it tended to show that the corporation did not consider the trip to have had a business purpose. The Tax Court did not err in its assessment of the relevance of the appellant’s intent. The findings of the appellant’s subjective intent were not determinative of the inquiry under s. 15(1). The Tax Court’s finding that the appellant’s intent to benefit the Cirque was formulated after the commitment for the trip was made was irrelevant to what his intent or the intent of the Family Holdco was when the Orbital Space Flight Purchase Agreement was signed. The Tax Court focused on ascertaining the purpose of the trip by considering whether it was a bona fide business transaction or principally undertaken to the personal benefit of the appellant, which was precisely the inquiry the case law directed was required. In conducting this analysis, the Tax Court did not rely solely on the appellant’s original personal motivations, but also on the myriad of other facts to ascertain whether the space trip was a bona fide corporate transaction. The Tax Court did not conclude that the original personal motivations of the appellant were determinative.

Laliberté v. Canada, [2020] F.C.J. No. 657, Federal Court of Appeal, J. Gauthier, Y. de Montigny and M.J.L. Gleason JJ.A., May 29, 2020. Digest No. TLD-June292020004