Wednesday, September 7, 2022
HomePersonal FinanceChoose places CRA again as an alternative in company tax case involving...

Choose places CRA again as an alternative in company tax case involving boat

Jamie Golombek: Choose reminds CRA it might probably’t second-guess a enterprise’s advertising technique on this case that concerned a ship

Article content material

When you’re a enterprise proprietor who has integrated your enterprise or an integrated skilled who operates their observe by way of knowledgeable company, it may be fairly tempting to have your company pay for all types of non-public bills.

Commercial 2

Article content material

But when these bills aren’t legitimately incurred for the aim of incomes earnings, they could possibly be non-deductible to the company and you might get personally assessed a shareholder profit by the Canada Income Company (CRA) for appropriating company funds for private use, moderately than extracting them first on a taxable foundation as both a wage, bonus or dividend.

Article content material

Equally, you may as well be assessed a taxable shareholder profit for the private use of a corporate-owned asset. That’s precisely what occurred in a current tax case involving a Vancouver Island couple, their company and using a ship.

The only challenge within the case was the worth of the private shareholder profit, within the 2013 and 2014 taxation years, for his or her private use of a ship owned by their company. The boat was primarily utilized by the corporate to market its marina, gas and provisions to boaters within the area.

Commercial 3

Article content material

Over the course of 5 many years, the couple, by way of their company, developed a “profitable, substantial” marina enterprise on the island that offered a diversified vary of products and providers to a big, however distant group of small communities, principally close to the water’s edge, on the islands north of Vancouver Island.

“It won’t be exhausting to image their area, neighborhood and business actions showing in a Canadian TV documentary on a documentary channel, offering the context for a Canadian actuality TV present on Historical past channel, or offering a locale for a sequel to Nook Fuel or a remake of The Beachcombers,” the decide stated.

The couple operated their enterprise collectively. The husband did all of the steering of the boat, and his spouse acted as a bookkeeper, paying suppliers and balancing financial institution statements. Immediately, the enterprise is usually run by the couple’s kids and their households.

Commercial 4

Article content material

The tax authority has no enterprise telling a businessperson how you can run that particular person’s enterprise

Tax Courtroom Choose

The boat on the centre of the tax dispute is a 36-foot pleasure craft. Its main enterprise use was to market the marina on to boaters visiting, residing or working within the area. This was executed by taking the boat out to satisfy boaters in any respect the opposite smaller marinas within the area, or within the bays the place they have been moored.

It was additionally used to have interaction with different native marinas, and their house owners and operators, in addition to their shoppers. This was typical direct private advertising. Many of those different boaters have been already customers of their marina given its dimension and placement, and people who weren’t have been bona fide potential shoppers.

The boat was additionally used to journey to, attend and entertain at boat exhibits in British Columbia and Washington, which the couple thought-about key to their enterprise and at which they rented cubicles for his or her marina.

Commercial 5

Article content material

The couple didn’t personal a ship earlier than they purchased the marina, have by no means taken the boat on any excursions, “not even brief ones,” as they might not depart their day by day enterprise tasks in the course of the boating season. After they did their advertising travels within the boat to different marinas and moorings, they did so principally within the evenings, after their regular workday tasks.

Their advertising journeys proved very profitable because the marina’s mooring and gas revenues elevated annually. Their advertising was described as “creating alternatives to socialize with shoppers and potential shoppers, eating at different marinas with them, entertaining them on the … (boat), and usually chatting up boating within the area and their marina and amenities.”

Commercial 6

Article content material

The boat was additionally utilized in different elements of the enterprise for incidental transportation, corresponding to delivering elements to business entities within the area. Private use of the boat was “very occasional, lower than a half-dozen instances.” For instance, they often took mates or household out for whale watching within the harbour instantly in entrance of the marina.

In every of the 2 tax years beneath assessment, the couple recorded and paid $18,000 to their company for his or her private use of the boat. This was executed in session with their accountant, and the couple thought that this quantity was “a conservatively excessive quantity within the circumstances.”

The courtroom discovered that the private use of the boat was minimal and within the vary of 5 per cent. In different phrases, considerably all of its use as a ship was for bona fide enterprise functions. Despite the fact that a profit was loved by the couple’s restricted private use of the boat, it was accounted for and this quantity was inside vary of an affordable truthful market worth.

Commercial 7

Article content material

The CRA had questioned the “advertising” actions of the couple, suggesting there was a private factor to the advertising that wanted to be taken under consideration when valuing the private shareholder profit.

The decide disagreed, saying the “CRA has not been allowed by the courts to easily second-guess a enterprise’s advertising technique or efforts.” Citing prior jurisprudence, “The tax authority has no enterprise telling a businessperson how you can run that particular person’s enterprise … A enterprise might choose to promote an exercise through which its proprietor … has a eager curiosity or a level of non-public satisfaction. There is no such thing as a motive why the expense of a selected type of promoting ought to be disallowed by the (CRA) solely due to the proprietor’s curiosity, satisfaction.”

Commercial 8

Article content material

The decide stated the couple’s advertising actions on the boat have been “bona fide and primarily undertaken for enterprise functions,” and that the bills have been cheap. The one factor left to resolve was whether or not the couple’s private use was correctly accounted for. The decide concluded that given their private use of the boat was within the five-per-cent vary, the $18,000 they yearly paid to the company for private use was cheap and no shareholder profit must be assessed.

Jamie Golombek, CPA, CA, CFP, CLU, TEP, is the managing director, Tax & Property Planning with CIBC Personal Wealth in Toronto.


 When you like this story, join the FP Investor Publication.




Postmedia is dedicated to sustaining a energetic however civil discussion board for dialogue and encourage all readers to share their views on our articles. Feedback might take as much as an hour for moderation earlier than showing on the location. We ask you to maintain your feedback related and respectful. Now we have enabled e mail notifications—you’ll now obtain an e mail for those who obtain a reply to your remark, there’s an replace to a remark thread you comply with or if a person you comply with feedback. Go to our Neighborhood Pointers for extra data and particulars on how you can regulate your e mail settings.



Please enter your comment!
Please enter your name here

Most Popular

Recent Comments