Wise v. R. – TCC: Improvements made by tenant corporation to leased building did not result in taxable shareholder benefits to shareholder who owned the building


Wise v. The Queen (September 17, 2019 – 2019 TCC 196, Smith J.).

Précis:   The taxpayer was the sole owner of a building the she leased to Wise Victoria Mortgages Inc. (“WVM”), a corporation of which she and her son were the principal shareholders.  WVM had a 5 year lease on the business portion of the building with an option to renew for a further 5 years.  The lease commenced in 2010 with a base rent of $2,200 per month.  WVM made extensive renovations on the building amounting to a total of $457,663 in 2011 and a further $164,005 in 2012.  CRA included these amounts in the taxpayer’s income as shareholder benefits.  The Court allowed the appeal, holding that there was no evidence of the increase in value of the building, if any, at the end of the lease by virtue of the renovations.  Costs were awarded to the taxpayer in accordance with Tariff B.

Decision:   This case essentially boiled down to a failure on the part of the Crown to demonstrate that the renovations in 2011 and 2012 in fact increased the residual value of the building to the taxpayer:

[62]  It is apparent, as argued by the Respondent, that some of the Renovation Expenses were incurred for structural improvements “of a permanent character”, as described in Saint-Germain, including the electrical and mechanical systems, for example. However, in light of the leasehold interest granted to VWM (which could extend beyond the 10 year term), it is not possible for the Court to quantify the value of the alleged shareholder benefit or to speculate as to the life-expectancy or residual value to the Appellant. That is a matter for another day.


[63]  In Angle, Noel J. explained that that the application of subsection 15(1) involves the taxation of a shareholder benefit “equal to the value of the property appropriated” (para. 33) but “the benefit must be real” (para. 27) and “in the absence of a real benefit, there is no legal fiction whereby a benefit is deemed to exist…”. The evidence must show that the shareholder “did in fact receive a benefit” (para. 28).  In this instance, I am satisfied that she did not.

Thus the taxpayer’s appeal was allowed with costs in accordance with Tariff B.