Where a corporation pays wages to an individual employee who is not a shareholder but does not deal at arm’s length with a shareholder and a portion of the wages is subsequently determined to be unreasonable pursuant to s. 67, CRA confirmed that the overpayment (which had been included in the individual’s s. 5 income) would not also be included in the individual’s income under s. 15(1) because the benefit had not been conferred on the individual in a capacity of shareholder. There also would be no deemed inclusion under s. 15(1) pursuant to s. 15(1.4)(c) because the same amount had been included in the individual’s employment income.
If such non-arm’s length employee was also a shareholder, CRA indicated that although the overpayment would otherwise be included in the individual’s income pursuant to s. 15(1), s. 248(28) would exclude the application of s. 15(1), so that there was no double taxation. Again, s. 15(1.4)(c) would not apply because of the s. 5 inclusion.