Benefit Principle

"As to Judge Mogan’s interpretation of subsection 15(1) of the Income Tax Act, we find no reason to intervene. He rightly referred to Simons v. Minister of National Revenue, (1985), 85 D.T.C. 105 (T.C.C.) and Robinson v. Minister of National Revenue, (1993), 93 D.T.C. 254 (T.C.C.) which relied on the decision in Minister of National Revenue v. Pillsbury Holdings Ltd., (1964), 64 D.T.C. 5184 (Can. Ex. Ct.) where Cattanach, J. had this to say about the predecessor of subsection 15(1). That statement, still applicable, reads like this:\n\nIn applying paragraph (c) full weight must be given to all the words of the paragraph. There must be a “benefit or advantage” and that benefit or advantage must be “conferred” by a corporation on a “shareholder”. The word “confer” means “grant” or “bestow”. Even where a corporation has resolved formally to give a special privilege or status to shareholders, it is a question of fact whether the corporation’s purpose was to confer a benefit or advantage on the shareholders or some purpose having to do with the corporation’s business such as inducing the shareholders to patronize the corporation. If this be so, it must equally be a question of fact in each case where the Minister contends that what appears to be an ordinary business transaction between a corporation and a shareholder is not what it appears to be but is in reality a method, arrangement or device for conferring a benefit or advantage on the shareholder qua shareholder.\n\nThe same reasoning lead Bowman J.T.C.C. to a similar conclusion in a very recent case, Long v. R. (July 24, 1997), Doc. 96-4714(IT)I (T.C.C.) where the taxability asserted by the Minister was based upon an erroneous failure to adjust a loan account. Judge Bowman found that a simple error of this sort, readily susceptible of correction, does not create taxability. He further added: “...that a bookkeeping error of which the sole shareholder was not aware and which he did not sanction and that was not in accordance with the company’s established practices [does not] constitute in reality a method, arrangement or device for conferring a benefit or advantage on the shareholder qua shareholder.”\n\nFor the above reasons, this appeal must be dismissed, with costs.\n\nAppeal dismissed."