McClurg v. Minister of National Revenue, (1986) 2 F.T.R. 1 (TD)
Judge | Strayer, J. |
Court | Federal Court (Canada) |
Case Date | January 27, 1986 |
Jurisdiction | Canada (Federal) |
Citations | (1986), 2 F.T.R. 1 (TD) |
McClurg v. MNR (1986), 2 F.T.R. 1 (TD)
MLB headnote and full text
McClurg v. Minister of National Revenue
(No. T-649-84)
Indexed As: McClurg v. Minister of National Revenue
Federal Court of Canada
Trial Division
Strayer, J.
February 20, 1986.
Summary:
A taxpayer and his partner were the sole officers and directors of a company and each held 400 Class A common shares. Their wives each held 100 Class B common shares. In 1978, 1979 and 1980, the only dividends paid were $10,000.00 each year to the wives. The Minister of National Revenue reassessed the taxpayer's income and, pursuant to s. 56(2) of the Income Tax Act, determined that 80% of the dividends were to be included in the taxpayer's income. The Tax Court of Canada upheld the assessment. The taxpayer appealed.
The Federal Court of Canada, Trial Division, allowed the appeal. The court held that s. 56(2) did not apply, therefore none of the dividends could be included in the taxpayer's income.
Income Tax - Topic 2103
Other sources of income - Indirect payments - To other persons for tax payer's benefit - Income Tax Act, S.C. 1970-71-72, c. 63, s. 56(2) - A taxpayer and his partner were the sole officers and directors of a company and each held 400 Class A common shares - Their wives each held 100 Class B common shares - The taxpayer and partner paid $10,000.00 in dividends to the wives and none to themselves - The Minister of National Revenue applied s. 56(2) to include 4/5 of the dividends ($8,000.00) in the taxpayer's income - The articles of incorporation allowed payment of dividends to only one class of shares, as did the applicable legislation - The taxpayer's wife provided security for the company and sporadically worked for the company when needed - The taxpayer and his partner held the only participating shares, so they were benefiting from the company's success notwithstanding the lack of a dividend - The Federal Court of Canada, Trial Division, held that s. 56(2) did not apply to include 80% of the dividends in the taxpayer's in come, because the dividends were not paid to the wife to avoid the receipt of funds that the taxpayer was entitled to, and where there was adequate consideration for the dividends, there was no "benefit" within the meaning of s. 56(2).
Cases Noticed:
Miller v. Minister of National Revenue (1962), 62 D.T.C. 1139, appld. [para. 11].
Champ v. Minister of National Revenue (1983), 83 D.T.C. 5029 (F.C.T.D.), dist. [para. 16].
Murphy v. Minister of National Revenue (1980), 80 D.T.C. 6314 (F.C.T.D.), dist. [para. 16].
Minister of National Revenue v. Bronfman (1965), 65 D.T.C. 5235 (Ex. Ct.), dist. [para. 16].
Minister of National Revenue v. Parsons and Vivian, [1984] 2 F.C. 909; 54 N.R. 227 (Fed. C.A.), refd to. [para. 17].
Titeley et al. v. Minister of National Revenue (1977), 77 D.T.C. 36 (T.R.B.), refd to. [para. 18].
Stubart Investments Limited v. Minister of National Revenue, [1984] 1 S.C.R. 536; 63 N.R. 241, refd to. [para. 18].
Statutes Noticed:
Income Tax Act, S.C. 1970-71-72, c. 63, sect. 56(2) [para. 9].
Business Corporations Act, S.S. 1976-77, c. 10, sect. 24(3) [para. 12].
Counsel:
Appearances: G. Balon, for the plaintiff;
J.A. Van Iperen, Q.C., and D.P. Murphy, for the defendant.
Solicitors of Record:
Gordon Balon Law Office, Prince Albert, Saskatchewan, for the plaintiff;
Frank Iacobucci, Q.C., Deputy Attorney General of Canada, for the defendant.
This appeal was heard on January 27, 1986, at Saskatoon, Saskatchewan, before Strayer, J., of the Federal Court of Canada, Trial Division, who delivered the following judgment on February 20, 1986.
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McClurg v. Minister of National Revenue, (1987) 84 N.R. 214 (FCA)
...the assessment. The taxpayer appealed. The Federal Court of Canada, Trial Division, in a decision reported in (1986), 86 D.T.C. 6128 ; 2 F.T.R. 1, allowed the appeal. The court held that s. 56(2) did not apply, therefore none of the dividends could be included in the taxpayer's income. The......
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McClurg v. Minister of National Revenue, (1990) 119 N.R. 101 (SCC)
...the appeal and affirmed the assessment. The taxpayer appealed. The Federal Court of Canada, Trial Division, in a decision reported (1986), 2 F.T.R. 1, allowed the appeal. The court held that s. 56(2) did not apply, therefore none of the dividends could be included in the taxpayer's income. ......
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Winter v. Minister of National Revenue, (1990) 127 N.R. 69 (FCA)
...more recently, in this court, of McClurg v. Minister of National Revenue , [1988] 1 C.T.C. 75; 84 N.R. 214, affirming [1986] 1 C.T.C. 355; 2 F.T.R. 1; 86 D.T.C. 6128, a decision now under appeal before the Supreme Court. [See 119 N.R. 101]. And yet the vagueness of its wording has never bee......
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Minister of National Revenue v. Fairey, (1991) 43 F.T.R. 309 (TD)
...Minister of National Revenue (20751 - December 29, 1990) 119 N.R. 101. In that case Mr. Justice Strayer of this Court's Trial Division (1986), 2 F.T.R. 1; 86 D.T.C. 6128, holding that s. 56(2) is not of such wide application as the Minister contended, was upheld by the majority decision of ......
-
McClurg v. Minister of National Revenue, (1987) 84 N.R. 214 (FCA)
...the assessment. The taxpayer appealed. The Federal Court of Canada, Trial Division, in a decision reported in (1986), 86 D.T.C. 6128 ; 2 F.T.R. 1, allowed the appeal. The court held that s. 56(2) did not apply, therefore none of the dividends could be included in the taxpayer's income. The......
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McClurg v. Minister of National Revenue, (1990) 119 N.R. 101 (SCC)
...the appeal and affirmed the assessment. The taxpayer appealed. The Federal Court of Canada, Trial Division, in a decision reported (1986), 2 F.T.R. 1, allowed the appeal. The court held that s. 56(2) did not apply, therefore none of the dividends could be included in the taxpayer's income. ......
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Winter v. Minister of National Revenue, (1990) 127 N.R. 69 (FCA)
...more recently, in this court, of McClurg v. Minister of National Revenue , [1988] 1 C.T.C. 75; 84 N.R. 214, affirming [1986] 1 C.T.C. 355; 2 F.T.R. 1; 86 D.T.C. 6128, a decision now under appeal before the Supreme Court. [See 119 N.R. 101]. And yet the vagueness of its wording has never bee......
-
Minister of National Revenue v. Fairey, (1991) 43 F.T.R. 309 (TD)
...Minister of National Revenue (20751 - December 29, 1990) 119 N.R. 101. In that case Mr. Justice Strayer of this Court's Trial Division (1986), 2 F.T.R. 1; 86 D.T.C. 6128, holding that s. 56(2) is not of such wide application as the Minister contended, was upheld by the majority decision of ......