BETWEEN:
GÉRALD HOULE,
Appellant,
and
HIS MAJESTY THE KING,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
Appeal heard on June 1 and 2, 2022, at Trois-Rivières, Quebec
Before: The Honourable Justice Sylvain Ouimet
Appearances:
Counsel for the Appellant:
Pierre-Marc Seers
Counsel for the Respondent:
Renaud Fioramore-Beaulieu
JUDGMENT
The appeal from the notices of reassessment made on July 2, 2013, under the Income Tax Act for the 2010 and 2011 taxation years is allowed, with costs, in accordance with the attached reasons for judgment.
Signed at Toronto, Ontario, this 14th day of February 2023.
“Sylvain Ouimet”
Ouimet J.
Translation certified true
on this 5th day of March 2025.
Vera Roy, Senior Jurilinguist
BETWEEN:
GÉRALD HOULE,
Appellant,
and
HIS MAJESTY THE KING,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Ouimet J.
I. INTRODUCTION
1Gérald Houle (“Mr. Houle”) is appealing two notices of reassessment dated July 2, 2013, in which the Minister of National Revenue (the “Minister”) added a total of $107,486 to his income for the 2010 and 2011 taxation years under subsection 15(1) of the Income Tax Act[1] (the “ITA”).
2The Minister found that Mr. Houle had received $107,486 as shareholder of the “Le Monnaie-Heure inc.” store (the “Corporation”). According to the Minister, since the fiscal year of the Corporation during which Mr. Houle received this amount ended on April 30, 2011, the Minister added two-thirds of the amount ($71,657) to his income for the 2010 taxation year and one-third ($35,829) to his income for the 2011 taxation year.[2] The parties do not dispute the Minister’s allocation method.[3]
3As a result of representations made by Mr. Houle in connection with the objection raised against the Canada Revenue Agency (the CRA), the amount added to Mr. Houle’s income was reduced to $96,734. Therefore, the amounts of $64,489 and $32,245 were added to Mr. Houle’s income for the 2010 and 2011 taxation years respectively, in accordance with the allocation method described above.[4]
4The following person testified for the appellant at trial:
- −Mr. Houle.
5The following person testified for the respondent at trial:
- −Geneviève Théaudière, CRA Appeals Officer
II. ISSUE
6The issue is as follows:
- −Was the Minister correct in finding that a benefit of $96,734 was conferred on Mr. Houle qua shareholder during the 2010 and 2011 taxation years?
7To resolve this issue, the Court will have to answer the following question:
- −Was the Minister correct in finding, solely on the basis of the difference between the balances of the Corporation’s “Payable to Shareholder” account at the beginning and at the end of the fiscal year, that a benefit was conferred on Mr. Houle?
III. RELEVANT STATUTORY PROVISION
8The relevant statutory provision reads as follows:
Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.)
15 (1) If, at any time, a benefit is conferred by a corporation on a shareholder of the corporation, on a member of a partnership that is a shareholder of the corporation or on a contemplated shareholder of the corporation, then the amount or value of the benefit is to be included in computing the income of the shareholder, member or contemplated shareholder, as the case may be, for its taxation year that includes the time, except to the extent that the amount or value of the benefit is deemed by section 84 to be a dividend or that the benefit is conferred on the shareholder
(a) where the corporation is resident in Canada at the time,
(i) by the reduction of the paid-up capital of the corporation,
(ii) by the redemption, acquisition or cancellation by the corporation of shares of its capital stock,
(iii) on the winding-up, discontinuance or reorganization of the corporation’s business, or
(iv) by way of a transaction to which subsection 88(1) or (2) applies;
(a.1) where the corporation is not resident in Canada at the time,
(i) by way of a distribution to which subsection 86.1(1) applies,
(ii) by a reduction of the paid-up capital of the corporation to which subclause 53(2)(b)(i)(B)(II) or subparagraph 53(2)(b)(ii) applies,
(iii) by the redemption, acquisition or cancellation by the corporation of shares of its capital stock, or
(iv) on the winding-up, or liquidation and dissolution, of the corporation;
(b) by the payment of a dividend or a stock dividend;
(c) by conferring, on all owners of common shares of the capital stock of the corporation at that time, a right in respect of each common share, that is identical to every other right conferred at that time in respect of each other such share, to acquire additional shares of the capital stock of the corporation, and, for the purposes of this paragraph,
(i) the shares of a particular class of common shares of the capital stock of the corporation are deemed to be property that is identical to the shares of another class of common shares of the capital stock of the corporation if
(A) the voting rights attached to the particular class differ from the voting rights attached to the other class, and
(B) there are no other differences between the terms and conditions of the classes of shares that could cause the fair market value of a share of the particular class to differ materially from the fair market value of a share of the other class, and
(ii) rights are not considered identical if the cost of acquiring the rights differs; or
(d) by an action to which paragraph 84(1)(c.1), (c.2) or (c.3) applies.
IV. POSITIONS OF THE PARTIES
A. Mr. Houle’s position
9Mr. Houle’s position may be summarized as follows:
- −Counsel for Mr. Houle argues that it was not open to the Minister to conclude solely on the basis of the difference between the balances of the Corporation’s “Payable to Shareholder” account at the beginning and at the end of the fiscal year, that a benefit had been conferred on Mr. Houle. According to him, the Minister could not draw such a conclusion because these figures were merely accounting entries. He argues that Mr. Houle did not receive $96,734 from the Corporation and that, consequently, the Corporation did not confer this amount on him as a benefit.[5] Were the Court to hold that the Minister could make such a finding, counsel for Mr. Houle argues that he has demonstrated that Mr. Houle did not receive $96,734 from the Corporation. In this regard, he also argues that he has demonstrated that the amounts Mr. Houle received from the Corporation during the 2010 and 2011 taxation years were repayments of advances he had made in previous taxation years.[6]
B. Respondent’s position
10The respondent’s position may be summarized as follows:
- −The respondent argues that Mr. Houle did not advance $96,374 to the Corporation during its 2011 taxation year.[7] According to the respondent, Mr. Houle artificially increased the balance of the “Payable to Shareholder” account to allow the Corporation to pay him tax-free amounts.[8] Therefore, according to the respondent, Mr. Houle appropriated $96,374 from the Corporation.
- −The respondent argues that the Minister considered the balances of the “Payable to Shareholder” account only for the Corporation’s 2011 fiscal year. According to the Minister, the only relevant analysis is the one relating to the Corporation’s 2011 fiscal year, not previous years. Therefore, Mr. Houle’s analysis of the Corporation’s fiscal years prior to 2011 is not relevant.[9]
V. FACTS
11During the 2010 and 2011 taxation years, Mr. Houle was the Corporation’s sole shareholder and director. The Corporation’s main activities were the sale of collectible coins and the purchase and sale of collectibles (miniature cars, NASCAR jackets, stamps, etc.).[10] The Corporation’s fiscal year ended on April 30 of each year.[11]
12The Minister first added $107,486 to Mr. Houle’s income for the 2010 and 2011 taxation years. Before doing so, the CRA reviewed certain documents prepared by the Corporation’s accountant. According to the year‑end adjusting entries in the Corporation’s accounts and the trial balance included in these documents, the balance of the “Payable to Shareholder” account at the end of the Corporation’s 2011 fiscal year was $107,486. The evidence shows that the CRA found that a benefit of $107,486 was conferred on Mr. Houle without first determining whether this amount had been paid to him.[12] The evidence also shows that the CRA found that the Corporation conferred this benefit on Mr. Houle after reviewing the Corporation’s “year-end adjusting” and “trial balance” accounting entries.[13] According to Ms. Théaudière’s testimony, these entries were likely made by the accountant to establish the year-end balance of the Corporation’s “Payable to Shareholder” account for 2011.[14]
13During his testimony, Mr. Houle submitted an Excel file to the Court that included several tables listing Mr. Houle’s corporate expenses for the 1999 to 2008 taxation years inclusive.[15] According to Mr. Houle, he advanced $379,980 to the Corporation during this period.[16]
VI. DISCUSSION
A. The amount at issue
14During her testimony, Ms. Théaudière admitted that she noticed an error in the Corporation’s accounting records as she prepared for trial. According to Ms. Théaudière, because of this error, $34,352 should have been subtracted from the amount added to Mr. Houle’s income. Therefore, $62,382 (i.e., $96,374 - $34,352) should have been added to Mr. Houle’s income.[17] During oral argument, counsel for Mr. Houle brought additional accounting errors to the Court’s attention. After quickly reviewing these possible errors, the Court found that certain amounts shown on the Corporation’s balance sheet for the 2011 taxation year did indeed appear to have been erroneously posted to the “trial balance”.[18] According to the evidence, after correction of these errors, $26,351 should have been subtracted from the “Payable to Shareholder” account.[19] To confirm that this was the case, the Court took the exceptional step of asking Ms. Théaudière to return to the witness box to provide clarification. Ms. Théaudière confirmed to the Court that these were indeed errors and that, had these errors been brought to her attention sooner, she would have changed her testimony. Taking these errors into account, she would have agreed that the amount of the benefit conferred on Mr. Houle should be reduced again to $36,029.90 (i.e., $62,382 - $26,351).[20]
15In light of this, the Court finds that the amount of the benefit conferred on Mr. Houle that is at issue is reduced to $36,029.90.
B. Was the Minister correct in finding, solely on the basis of the balances of the Corporation's "Payable to Shareholder" account, that a benefit was conferred on Mr. Houle?
16Under subsection 15(1) of the ITA, in computing their income, shareholders include the value of the benefit conferred on them by the corporation of which they are shareholders. The word “confer” means “grant” or “bestow”.[21]
17In Laliberté v. Canada,[22] the Federal Court of Appeal described the analysis that must be performed to decide whether a benefit has been conferred on a shareholder within the meaning of subsection 15(1) of the ITA. According to the Court, the analysis involves three steps:
1- determining whether a benefit has been conferred on the shareholder qua shareholder;
2- determining what precisely the benefit is; and
3- determining the value of that benefit to the shareholder by asking what the shareholder would have had to pay for it had he or she not been a shareholder.[23]
18It should be noted that this analysis is inherently factual.[24]
(1) The first step of the analysis: Determining whether a benefit was conferred on Mr. Houle qua shareholder
19In this case, the Court must decide whether it was open to the Minister to find, solely on the basis of the balances of the Corporation’s “Payable to Shareholder” account, that Mr. Houle was conferred a benefit.
20According to Mr. Houle’s testimony, the Corporation’s “Payable to Shareholder” account balance was the total of the following amounts: all advances that he made to the Corporation during its 2011 taxation year, including corporate expenses he paid with his personal credit card during that year.[25]
21The respondent argues that the evidence demonstrates that Mr. Houle did not advance these amounts to the Corporation and did not pay some of these expenses with his personal credit card. The respondent argues that the Corporation’s accountant deliberately used accounting entries to artificially increase the balance of the Corporation’s “Payable to Shareholder” account. According to the respondent, this scheme allowed Mr. Houle to be reimbursed later for advances that had not been made. The respondent argues that because the advances were made with non-taxable funds, when they were reimbursed, Mr. Houle received tax-free amounts that he had not advanced.
22In this regard, our Court reached the following conclusion in Chaplin v. The Queen:[26]
[114] That said, I am not convinced that simply making a false bookkeeping entry, even knowingly, confers a benefit on a shareholder. It seems to me that the benefit is conferred when something of value is conferred on the shareholder. At most, a false bookkeeping entry lays the groundwork for disguising a future appropriation or hiding an outstanding debt owed to a company by a shareholder. It is not, in itself, a benefit.[27]
23I agree. The Minister cannot find that a benefit was conferred on a shareholder solely because of false accounting entries.
24In Laliberté, the Federal Court of Appeal said a benefit conferred must be real and not a “legal fiction”.[28] I am of the opinion that this also applies to “accounting fictions”. I would add that the term “benefit” is not defined in the ITA,[29] but the term “avantage” (“benefit”) is defined in the Petit Robert[30]dictionary as follows:
[translation]
That which is useful, profitable.
25As for [translation] “profitable”, the word refers to the idea of “profiting from” something and therefore to the term “profit”. “Profit” is defined in the Petit Robert[31] as follows:
[translation]
Increase in the assets that one possesses or improvement in one’s situation resulting from an activity.
26The evidence does not show that Mr. Houle received any amounts from the Corporation during his 2010 and 2011 taxation years, except for amounts he had advanced to the Corporation that were reimbursed to him. Accordingly, there was no increase in the assets in his possession as a result of the Corporation and therefore no improvement in his financial situation. In light of this and of the foregoing, the Court finds that the Corporation did not confer a benefit on Mr. Houle.
27The respondent is of the view that the Federal Court of Appeal decision in Dumais v. Canada[32] provides a basis for our Court to find that a benefit within the meaning of subsection 15(1) of the ITA was conferred on a shareholder because of an increase in the balance of the “Payable to Shareholder” account in a taxation year. With this in mind, he refers to the following passage in Dumais:
[11] However, according to counsel for the respondent, this amount not only did not disappear from the liabilities on the Company’s balance sheet, it continued to increase in subsequent years. It rose from $22,522.82 in 2000 to $26,022.30 in 2001, $27,043 in 2002, $37,371 in 2003 and $41,401 in 2004. Accordingly, he submits that since the Company’s debt to the appellant still appears on the Company’s books, the appellant could still seek repayment of that debt, without tax consequences, for advances owed to her. This constitutes a benefit of $42,000 consisting of the $19,417.98 amount acknowledged by the applicant and the $22,522.82 debt appearing in the Company’s financial statements from the year 2000 onward.
[12] The judge did not err in accepting the respondent’s argument to the effect that the appellant could still be reimbursed for the unextinguished debt owed to her by the Company for the advances.[33]
28I do not share this view.
29In Dumais, the sole shareholder and director of the company had not paid the full sale price for a building that the Company had sold him. The CRA found that the shareholder received a benefit equal to the difference between the sale price and the amount that the shareholder paid the Company for the building. The CRA had previously found that the balance of the Company’s “Payable to Shareholder” account had not been adjusted to reflect this fact.
30The issue before the Federal Court of Appeal and the Tax Court of Canada was not whether it was open to the CRA to find that a benefit had been conferred on a shareholder because of the increase in the “Payable to Shareholder” account in a taxation year during which the shareholder had not made any advances. It is apparent from reading the decision of the Tax Court of Canada[34] that the balances of the “Payable to Shareholder” account included amounts advanced by the shareholder to the Company and that the issue of whether these advances had actually been made was not in dispute. Also, there was no question of any false accounting entries. Finally, after having read the decision of the Federal Court of Appeal, I am of the view that it is impossible to argue that the Court explicitly or implicitly found that a benefit can be conferred within the meaning of subsection 15(1) of the ITA solely due to an increase in the balance of the “Payable to Shareholder” account.
(2) The second and third steps of the analysis
31Since the Court has found that the first condition was not met for subsection 15(1) of the ITA to apply, it does not have to deal with the other two steps of the analysis.
VII. CONCLUSION
32In view of the foregoing, the Court considers that the Minister cannot find that a benefit has been conferred on a shareholder within the meaning of section 15(1) of the ITA solely by establishing that the balance of the “Payable to Shareholder” account was artificially increased after false accounting entries were made.
33Consequently, the Court finds that the Minister was not correct in finding that a benefit of $96,734 was conferred on Mr. Houle qua shareholder during the 2010 and 2011 taxation years.
34For this reason, the appeal is allowed with costs.
35The assessments made by the Minister on July 2, 2013, for the 2010 and 2011 taxation years are referred back to the Minister for reconsideration and reassessments based on the following:
- −A benefit of $64,489 was not conferred on Mr. Houle qua shareholder of the Corporation during the 2010 taxation year;
- −A benefit of $32,245 was not conferred on Mr. Houle qua shareholder of the Corporation during the 2011 taxation year.
Signed at Toronto, Ontario, this 14th day of February 2023.
“Sylvain Ouimet”
Ouimet J.
Translation certified true
on this 5th day of March 2025.
Vera Roy, Senior Jurilinguist
2023 TCC 2
COURT FILE NO.:
2017-2243(IT)G
STYLE OF CAUSE:
GÉRALD HOULE AND
HIS MAJESTY THE KING
PLACE OF HEARING:
Trois-Rivières, Quebec
DATES OF HEARING:
June 1 and 2, 2022
REASONS FOR JUDGMENT BY:
The Honourable Justice Sylvain Ouimet
DATE OF JUDGMENT:
February 14, 2023
APPEARANCES:
For the Appellant:
Pierre-Marc Seers
For the Respondent:
Renaud Fioramore-Beaulieu
COUNSEL OF RECORD:
For the Appellant:
Pierre-Marc Seers
Firm:
Daigle, avocats fiscalistes inc.
For the Respondent:
François Daigle
Deputy Attorney General of Canada
Ottawa, Canada
[1] R.S.C. 1985, c. 1 (5th Supp.).
2Reply to the Notice of Appeal at para. 8.
3Transcript of June 1, 2022 at 10.
4Note 2 at para. 10.
5Transcript of June 2, 2022 at 144, 161 and 162.
6Ibid. at 116.
7Note 3 at 12.
8Ibid. at 14.
9Ibid. at 56.
10Note 2 at subpara. 11(b).
11Ibid. at subpara. 11(c).
12Note 5 at 20 and 21.
13Ibid. at 10–12.
14Ibid. at 17.
15Exhibit A-4, tab 4.
16Note 5 at 236.
17Ibid. at 42, 43 and 47.
18A corporation’s trial balance contains the list of all open accounts, their respective balances and the sum of the debits and credits of the accounts. This accounting document is used to verify the arithmetical accuracy of a corporation’s accounting entries. See in this regard Louis Ménard, Dictionnaire de la comptabilité et de la gestion financière (Montreal: Institut canadien des comptables agréés, 1994), sub verbo “balance de vérification”.
19The “Payable to Shareholder” account is a year-end accounting entry shown on the Corporation’s trial balance. See Transcript of June 2, 2002 at 14.
20Ibid. at 127, lines 12–19, and 221, line 20.
21M.N.R. v. Pillsbury Holdings Ltd., 1964 CanLII 1098 (CA EXC), [1965] 1 Ex. C.R. 676 at 684, cited in Laliberté v. Canada, 2020 FCA 97 at para. 34.
22Laliberté, supra.
23Ibid. at para. 33.
24Supra note 21.
25Note 3 at 46.
[26] 2017 TCC 194.
27Ibid. at para. 114.
28Laliberté at para. 35, citing Colubriale v. Canada at para. 28.
29Youngman v. The Queen, [1986] F.C.J. No. 714 (QL) at para. 18; Long v. The Queen,[1997] T.C.J. No. 722 at para. 12.
30Le Robert, https://dictionnaire.lerobert.com/ (accessed on November 11, 2022), sub verbo “avantage”.
31Le Robert, https://dictionnaire.lerobert.com/ (accessed on November 11, 2022), sub verbo “profit”.
[32] 2008 FCA 174.
33Ibid. at paras. 11 and 12.
34Dumais v. Canada, 2007 TCC 297.