04 Oct 2018
Determining the Value of a Shareholder Taxable Benefit
Generally, if a corporation grants a benefit to a shareholder, it is considered to be a shareholder taxable benefit by the Canada Revenue Agency (CRA). The benefit must be included as shareholder taxable income in the year the benefit was conferred.
One example of this shareholder taxable benefit is corporate payment of personal expenses. Since there is no definition of “benefit” in the Income Tax Act, the “value” of the taxable benefit must be established, and this may very well be subjective and contested.
The following is an interesting story recently in the news of an example of a shareholder taxable benefit assessment from the CRA.
Is a Space Trip Considered to be a Taxable Benefit?
In the fall of 2009, the founder of Cirque du Soleil, Guy Laliberté, was reimbursed by the company for a $41.8 million space trip. There were various fundraising events and concerts held around the world at the same time that the trip was streamed live through a video link. In this video, Mr. Laliberté had given three reasons for this trip with only one being related to the business. This related to a fundraising opportunity for One Drop, which is a charity that the company had previously supported over the years.
The big question is whether this $41.8 million space trip was considered to be a shareholder taxable benefit for Mr. Laliberté?
The CRA takes the position that this entire balance should have been included as a shareholder taxable benefit instead of the reported $4 million to Mr. Laliberté, as the trip was considered to be personal. Also, there is no evidence that the company would have sent anyone else who works for the company on this trip other than Mr. Laliberté.
However, Mr. Laliberté claims that he had used this opportunity as a “stunt marketing event” and that the remaining balance should be deductible by the company as marketing and promotional expenses.
There are a few points to note:
- No analysis was completed by Cirque du Soliel for the media coverage of this trip.
- The Space Flight agreement was between Mr. Laliberté and his family holding company, not Cirque du Soliel.
- As per Cirque du Soliel’s CEO, Mr. Laliberté told the company about the trip and did not ask if he was allowed to go.
These points did not make the case stronger for Mr. Laliberté, as there is no clear evidence that this space trip was in fact a business trip.
The underlying tax question is which portion of this trip should have been considered to be a shareholder taxable benefit? Could the company have used a way of determining how much of this trip was personal versus business related?
The big take away from this news article is to be aware of large business expenses of your company. Be sure to determine whether the expense is considered to be a taxable benefit to the shareholder. If it appears to be a personal expense from the outside looking in, you may want to retain the necessary support for the large expense before CRA starts knocking on your door.
Please contact the Manning Elliott Tax Team for more information or if you have any questions about shareholder taxable benefit assessment.
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The above content is believed to be accurate as of the date of posting. Canadian and US Tax laws are complex and are subject to frequent changes. Professional tax advice should be sought before implementing any tax planning. Manning Elliott LLP cannot accept any liability for the tax consequences that may result from acting based on the information contained therein