Principal Issues: In a given situation, where an automobile benefit is included by virtue of paragraph 6(1)(a) in computing the employment income of a shareholder's son, does the same benefit also have to be included by virtue of subsections 15(1) and 15(5) in computing the shareholder's income?
Position: Question of fact. If the benefit was conferred on the son in his capacity as an employee, paragraph 15(1.4)(c) allows the value of the benefit to be excluded in computing the shareholder's income if the value of the benefit is included in computing the son's income.
Reasons: The wording of paragraph 15(1.4)(c).
FEDERAL TAXATION ROUNDTABLE 10 OCTOBER 2014
APFF - CONGRESS 2014
Question 1
Automobile benefit under subsection 15(5)
Son works in the business of his father, who is the sole shareholder of the corporation that carries on the business.
In the course of his employment, and in addition to paying him a base salary, the corporation places a car at Son's disposal, which he uses primarily for personal purposes. A taxable benefit is calculated and added to his employment income in accordance with section 6 of the Income Tax Act (the "Act").
Pursuant to subsection 15(5), a benefit should be included in the income of a shareholder for any benefit in respect of an automobile made available to the shareholder, or a person related to the shareholder (in this case, Son). An exception to this inclusion exists where the shareholder is taxed on the benefit under section 6.
In practice, it appears that auditors tend to assess the parent without necessarily excluding taxation of the child. The pretext used to justify such an inclusion would be that, in our example, the father would benefit indirectly from the economic advantage granted to the son, because the needs of the family for which he would otherwise have to pay would be reduced accordingly.
Question to CRA
Is the Canada Revenue Agency (the "CRA") of the view that the father should include the benefit under subsection 15(5), notwithstanding that it is the son who has benefited from the automobile made available to him and despite the fact that the son is still required to include the amount of a taxable benefit under section 6?
CRA Response
In general, where a corporation confers a benefit on a shareholder, subsection 15(1) applies to include the value of the benefit in computing the shareholder's income.
More specifically, subsection 15(5) stipulates, for the purposes of subsection 15(1), that the value of the benefit to be included in computing a shareholder’s income for a taxation year with respect to an automobile made available to the shareholder, or a person related to the shareholder, by a corporation shall (except where an amount is determined under subparagraph 6(1)(e)(i) in respect of the automobile in computing the shareholder’s income for the year) be computed on the assumption that subsections 6(1), 6(1.1), 6(2) and 6(7) apply, with such modifications as the circumstances require, and as though the references therein to “the employer of the taxpayer”, “the taxpayer’s employer” and “the employer” were read as “the corporation”.
Furthermore, for the purposes of subsection 15(1), paragraph 15(1.4)(c) provides in particular that a benefit conferred by a corporation on an individual is a benefit to a shareholder of the corporation if the individual does not deal at arm's length with the shareholder. However, this rule does not apply to the extent that the value of the benefit is included in computing the income of the individual or another person. Subsection 15(1.4)applies to benefits granted after October 30, 2011.
If the automobile benefit was conferred on Son after October 30, 2011 in his capacity of employee of the corporation and Son included the value of the benefit in computing his income from employment, the CRA is of the view that no amount would be included in computing the income of his father under subsection 15(1) and 15(5).
Whether the automobile benefit was conferred on Son in his capacity as an employee can be resolved only after considering all the relevant facts.
Randa El-Kadi
613-957-8976
October 10, 2014
2014-053810