Payment Of Insurance Premiums As Shareholder Benefits ' A Canadian Tax Lawyer's Guide To Boyd B. Harding v The Queen

• Published date: 16 February 2022
• Subject Matter: Corporate/Commercial Law, Insurance, Tax, Corporate and Company Law, Insurance Laws and Products, Income Tax, Tax Authorities, Shareholders
• Law Firm: Rotfleisch & Samulovitch P.C.
• Author: Mr David Rotfleisch

Introduction: Shareholder Benefits

Under subsection 15(1) of the Canadian Income Tax Act, a distribution of property by a corporation to a shareholder or a contemplated shareholder is a taxable benefit that must be included in the shareholder's income unless the distribution is exempted by the subsection. These shareholder benefits are not taxed as dividends. Consequently, if the shareholder is an individual, the dividend tax credit is not available, and the corporation is not permitted to make a corresponding deduction for the conferred benefit. This provision captures situations where a shareholder receives distributions from a corporation other than through the conventional dividend route and its purpose is to prevent shareholders from using corporate property for personal use without the appropriate payment of tax. Many cases have come before the courts as to the scope of a shareholder benefit and whether a benefit has been conferred. On January 11, 2022, the Tax Court of Canada released a decision, Boyd B. Harding v The Queen, 2022 TCC 3, on whether premiums paid in relation to insurance policies by a corporation to its shareholder was considered a shareholder benefit.

Facts of Boyd B. Harding v The Queen, 2022 TCC 3

Mr. Boyd B. Harding is a successful businessman who is the sole shareholder and director of a holding company. This holding company is a majority shareholder of a corporation named Boyd B. Harding Ltd. (BBH Ltd.), which carries on a logging business that has annual income of around $18 million.

For the 2013, 2014, and 2015 taxation years, BBH Ltd. paid the premiums for the insurance policies that insured the lives of Mr. Boyd and his wife. The beneficiaries of the insurance policies, were, at times, his wife, and stepchildren for the relevant years in question. Mr. Boyd was reassessed by the Canada Revenue Agency (CRA) for the three years on the grounds that the premium paid by the corporation should have been included in Mr. Boyd's income as shareholder benefits.

Issue before the Tax Court and the Position of the Parties with Respect to Shareholder Benefits

The primary issue before the Tax Court was whether the payment of the insurance premiums by BBH Ltd. conferred a shareholder benefit upon Mr. Boyd within the meaning of subsection 15(1) of the Income Tax Act. Evidently, Mr. Boyd was of the view that BBH Ltd. did not confer a shareholder benefit on him because his stepdaughter managed his insurance portfolio. Because his stepdaughter...