Shareholder benefit (s. 15(1))
A shareholder benefit arises under section 15(1) of the Income Tax Act when a corporation confers a benefit on a shareholder, a partnership-member shareholder or a contemplated shareholder. The amount or value is included in that person’s income, subject to listed exceptions.
A buyer reading a private company’s books can find personal costs the company paid for its owner. Section 15(1) is the rule behind that finding. The Act includes the benefit in the income of the shareholder, member or contemplated shareholder, for the taxation year that includes the time it was conferred.
What the CRA lists
The CRA says shareholder benefits can take almost any form and gives examples: payment of a shareholder’s personal expenses, personal use of company property without a fair market value charge, shareholder life insurance premiums, and guarantees of a shareholder’s personal loans. It also says they do not include benefits received as an employee. Section 15(1) carries exceptions, such as certain dividends and share transactions, so read the section itself.
What to check or ask
- Which personal expenses ran through the company
- Whether they were charged to a shareholder loan account
- How the seller’s returns treated them
See personal expenses in the books and the shareholder loan.
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Government of CanadaGovernmentIncome Tax Act, R.S.C. 1985, c. 1 (5th Supp.)
- 02Canada Revenue AgencyGovernmentShareholder benefits
- 03Canada Revenue AgencyGovernmentIncome Tax Folio S3-F1-C1, Shareholder Loans and Debts
Deavo is an advertising and listings platform, not a brokerage, law firm or valuation firm. This page is general information, not legal, tax, accounting or valuation advice, and rules differ by province. Confirm anything you rely on with a qualified professional before you act on it.