In the recent decision in Laliberté v Canada, 2020 FCA 97, [Laliberté] the Federal Court of Appeal confirmed that the $41.8-million costs of a shareholder's visit to outer space as a "space tourist" should be taxed as a shareholder benefit, and not as a deductible marketing expense as was claimed by the shareholder and the company, Cirque du Soleil. While the circumstances of that case are unusual and exotic, the case illustrates that the shareholder benefit rules should be considered any time a shareholder receives an economic benefit from the corporation because of their position as a shareholder.

The Income Tax Act (ITA) includes a shareholder benefit regime, which is intended to ensure that a shareholder is subject to tax on any economic benefit received from a corporation, subject to certain specified exclusions for bona fide business transactions, certain reorganizations, rights offerings, dividend payments, and capital reductions. The provisions have a broad scope, with the Canada Revenue Agency (CRA) stating that a shareholder benefit may arise from "just about any payment, appropriation of property or advantage conferred on a shareholder by the corporation."

The consequence of a shareholder benefit is significant: the value of the benefit is included in the shareholder's income for the year as regular income (taxed at a higher rate than a dividend), but the ITA does not allow a corresponding deduction to the corporation—thus resulting in an element of double tax. For non-resident shareholders, the ITA deems the benefit to be a dividend to which the normal non-resident withholding tax rules apply.

When Is a Shareholder Benefit Taxable?

ITA subsection 15(1) includes in a shareholder's income the amount or value of a benefit conferred on the shareholder by a corporation. The key issues are thus determining whether a "benefit" exists, whether such benefit has been "conferred," and how to determine the amount of the benefit.


The term "benefit" is not defined in the ITA but is broad and can include any type of payment or advantage to a shareholder that is outside of the ordinary course of business. In the view of the CRA, "benefits" include:

  • a payment by a corporation to a shareholder otherwise than pursuant to a bona fide business transaction; 
  • an appropriation of a corporation's funds or other property in any manner whatever to, or for the benefit of, a shareholder; or 
  • any other benefit or advantage conferred on a shareholder by a corporation. 

In Laliberté, the Federal Court of Appeal noted that the analysis often focuses on whether or not the transaction in question was made for a business or personal purpose. 

Conferral of a Benefit

Notably, the existence of an economic benefit does not necessarily mean that the shareholder has received a taxable benefit. The benefit will attract liability for tax only if it was "conferred" on the shareholder. The word "confer" implies the bestowal of bounty or largesse, to the economic benefit of the conferree and a corresponding economic detriment of the corporation.  What is key is that the corporation is impoverished and the shareholder enriched.

The case law has also found that subsection 15(1) does not always require an intent on the part of the corporation to confer a benefit or knowledge on the part of the shareholder—the requirement is whether either party knew or should have known that a benefit was conferred. In Laliberté, the Federal Court of Appeal noted that the inquiry is highly fact specific, and corporate intent will be more relevant in certain circumstances, such as when the benefit is the result of a bookkeeping error or other mistake.

Determining the Amount or Value of a Benefit

The ITA requires that the benefit be quantifiable in monetary terms. The courts have applied different valuation methods depending on the circumstances, focusing on using simple common-sense approaches where possible. One typical approach is to determine what the shareholder would have had to pay for the same benefit in the same circumstances if he or she had not been a shareholder of the company.

Laliberté v Canada

The above principles are illustrated in the Laliberté case. The facts, in brief, are as follows. In 1984, a street performer named Guy Laliberté co-founded Cirque du Soleil. Fast-forward 25 years to 2009 when the astronomical success of Cirque du Soleil landed Laliberté in outer space as Canada's first space tourist. One of the corporations in the Cirque du Soleil group paid $41.8 million for Laliberté's 12-day trip to the International Space Station. At the time, Laliberté was the controlling shareholder of the Cirque du Soleil group of companies.

The Minister of National Revenue assessed Laliberté with a shareholder benefit equal to the full cost of the trip. Laliberté appealed, arguing that he went to space for a stunt-type promotional activity on behalf of Cirque du Soleil and the One Drop charity.

To determine whether Laliberté's corporate-paid trip to space was a taxable benefit, the Tax Court considered the purpose of the trip, the circumstances surrounding the commitment made to take the trip, the nature of the promotional activities, and the corporate accounting and tax treatment of the expense. Justice Boyle provided 27 reasons to support the conclusion that the "motivating, essential and overwhelmingly primary purpose of the travel was personal." In addition, the Tax Court found that Laliberté committed to the trip before seeking approval from anyone in the Cirque du Soleil group, and structured the payment so that the external shareholders did not bear any of the economic costs of the trip.

Since very few taxpayers will find themselves in the similar position of trying to determine whether their trip to outer space is a taxable benefit or not, Justice Boyle drew an analogy with a shareholder taking a personal cross-country trip with the occasional business stop along the way:

I have approached my decision in this case as I would have had it involved an owner-manager of a business who decided that he personally wanted to go on a cross-country trip, and then decided that, he would stop in to visit business clients and suppliers and potential clients and potential suppliers along the way. One would expect his incremental direct costs associated with his business promotion activities and sidetrips should be deductible, but that little, if any, of the trip itself would be. If he could have his company pay for his whole trip, even if it did not deduct the cost for tax purposes, it would allow him to pay for his trip in pre-tax dollars. The shareholder benefit provisions exist for just such reasons, and going offside can often result in double taxation once corrected.

Simply put, there is a difference between a business trip which involves or includes personal enjoyment aspects, and a personal trip with business aspects, even significant ones, tacked on.

As the Laliberté case illustrates, a personal trip may incorporate bona fide business activities, and it is appropriate in those circumstances to identify and deduct the incremental, direct costs associated with those business activities. With respect to Laliberté's trip, Justice Boyle allocated 10 percent of the cost of the space trip to business activities and the remaining 90 percent as a taxable shareholder benefit. The Federal Court of Appeal agreed with the Tax Court, confirming Laliberté's $37.6-million shareholder benefit and resulting income inclusion.

Down-to-Earth Examples

Shareholders should remain aware of the potential income tax implications if they use corporate assets for personal use or if a benefit is provided in some other way. For shareholders who are not preparing for a trip to outer space, the following is a list of the more common scenarios that may result in a shareholder receiving a taxable benefit:

  • the use of a corporate automobile or airplane;
  • a single-purpose corporation that owns property (e.g., a helicopter) that is used only for the personal benefit of the shareholder;
  • the payment by a corporation of golf or country club memberships on behalf of a shareholder;
  • a trip paid for by the corporation—whether to the moon or Manitoba, all or some of the trip may be a taxable benefit;
  • a personal bank loan guaranteed by the corporation;
  • corporate improvements to leased property owned by the shareholder; and
  • corporate-paid insurance premiums, living accommodations and any other personal expenses paid for by the corporation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.