Are Mortgage Payments Shareholder Benefits?

On May 29, 2017, the Tax Court of Canada rendered its judgment in Struck v. The Queen, 2017 TCC 94, holding that the taxpayer’s corporation had conferred a shareholder benefit on the taxpayer by making mortgage payments for his personal residence.

How consistent was this decision with prior decisions? Our Tax Foresight analysis of the case follows.

In Struck, the benefit at issue related to mortgage payments made by the corporation. Though the property was in another shareholder's name throughout the years at issue, Mr. Struck had constructed his personal residence on the property. The mortgage was recorded as part of the corporation’s long-term debt, and the corporation paid the mortgage for the property during the years at issue.

Mr. Struck testified that there was an agreement between the shareholders and the corporation that since the mortgage proceeds were advanced to the corporation to be used for its business, the corporation would take on the mortgage liabilities and make the corresponding mortgage payments

However, Mr. Stuck was not able to provide any documentary evidence corroborating this testimony that the mortgage proceeds were advanced to the corporation for its own benefit.

Accordingly, the Court held that the corporation conferred a benefit on Mr. Struck when it made the mortgage payments on the property during the years at issue, such that those payments were taxable as a shareholder benefit under subsection 15(1) of the Income Tax Act.

This decision highlights the importance of maintaining clear evidence to corroborate that the corporation is receiving a benefit and not the shareholder alone.

Tax Foresight Case Analysis

• Tax Foresight correctly predicted the outcome of the Struck case with 92% confidence.
• If the Court had accepted Mr. Struck’s testimony that the mortgage proceeds were advanced to the Corporation for its benefit, Tax Foresight predicts that would not have been a shareholder benefit with 73% confidence.
• If the benefit was related to the performance of Mr. Struck’s duties at the corporation as a director or officer, Tax Foresight still predicts it would have been a shareholder benefit with 70% confidence.

Shareholder Benefits Insights

• 80% of cases on the issue of shareholder benefits have resulted in a finding that a shareholder benefit was conferred.
• Where the same benefit offered to the shareholder was offered to any other workers, officers, or directors of the corporation, only 2% of cases were held to be a shareholder benefit.
• Each time you run our Shareholder Benefits Classifier, you apply the entire body of cases to your client’s situation.
• Want to make sure you are considering all the new shareholder benefits cases when you give your advice? Tax Foresight reflects the newest case law and takes every case into account when providing its prediction.