A Canadian Tax Lawyer's Perspective On An Out Of This World Shareholder Benefit Decision ' Laliberté v. Canada

• Published date: 23 July 2020
• Subject Matter: Corporate/Commercial Law, Tax, Income Tax, Shareholders
• Law Firm: Rotfleisch & Samulovitch P.C.
• Author: Mr David Rotfleisch

Taxation of Shareholder Benefits

Subsection 15(1) of the Income Tax Act renders shareholder benefits taxable. A shareholder benefit arises where a shareholder receives a benefit from a corporation that is not part of a bona fide transaction between the corporation and the shareholder. A shareholder benefit may also arise where the benefit is received by a person in contemplation of that person becoming a shareholder. The taxation of shareholder's benefits starred in the recent case of Laliberté v. Canada 2020 FCA 97.

The Factual Background of Laliberté v. Canada

Guy Laliberté is the founder of Cirque du Soleil. In 2009, he completed his long term dream of visiting the International Space Station. The twelve-day once-in-a-lifetime trip was organized by a private space travel firm and paid for by a corporation in the Cirque du Soleil corporate group, of which Laliberté was the controlling shareholder. While at the International Space Station, Laliberté hosted a multi-hour charity livestream in support of One Drop, a clean water charity founded by Laliberté and associated with Cirque du Soleil. He took pictures for a photobook and film for a documentary, both intended to support One Drop.

When Laliberté returned from the International Space Station, he reported $4 million of the $41,816,954 paid for the trip as a shareholder benefit. He claimed he received no shareholder benefit, but reported the amount on his personal income tax return regardless to avoid a tax dispute and bad publicity. The costs of the trip were moved through several of Cirque du Soleil's corporations as a promissory note which was written off.

The Canada Revenue Agency disagreed with Laliberté's tax treatment of the stellar trip. The position of the Canada Revenue Agency was that the trip was primarily a personal trip for Laliberté. Any business aspects of the trip were added by Laliberté after planning the trip to make the trip appear as a business trip. They reassessed Laliberté for about $37.6 million dollar shareholder benefit from the trip. The remaining 10% of the trip price was allowed as a tax deduction as a business expense to reflect Laliberté's promotion of One Drop and Cirque Du Soleil during the trip.

The Courts' Analysis in Laliberté v. Canada

The Tax Court of Canada and the Federal Court of Canada both concluded the Canada Revenue Agency's tax assessment and allocation were correct. The Courts found based on 27 factors that the "overwhelmingly primary purpose of the...