Précis: Mr. Mikhail and his wife were the shareholders of 1526818 Ontario Inc., carrying on business as Queenslake Pharmacy, (the Corporation). CRA conducted a targeted audit of the pharmacy industry. As a result, Mr. Mikhail filed amended returns for 2010 and 2011 and his wife filed amended returns for 2012 and 2013. Those returns reported the unreported income of the Corporation in each of those year taking the form of rebates (the Rebates) from drug suppliers and manufacturers. The Mikhails and the Corporation each appealed their reassessments for those years, the main point being the argument that the Corporation should not be taxed on the same income reported by the individual shareholders. A lesser point at issue was the quantum of the Rebates.
The Court held that the Corporation, not the Mikhails, was taxable on what it termed In-Kind Rebates (traveller’s cheques, gift cards and prepaid credit cards) since they were used in the Corporation’s business and not appropriated by the Mikhails. Other non-cash Rebates were taxable only in the hands of the Mikhails, not the Corporation. The Court accepted that the cash rebates were placed in the Corporation’s cash register and were reported as income of the Corporation. The Court accepted the CRA’s assumptions as to the amount of the Rebates.
There was no order as to costs.
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