A December 17, 2025 Court of Quebec case considered whether shareholder benefits arising from approximately $1.6 million in personal expenses paid by a corporation from 2014 to 2017 should be included in the shareholder’s income or whether they could be offset by loans that he had made to the corporation. From 2015 to 2017, the taxpayer had made three loans to the corporation, totalling approximately $1.5 million.
Taxpayer loses
The expenses that the corporation paid on behalf of the shareholder included travel, meals, entertainment, retail purchases and construction costs. The court acknowledged that shareholder benefits can sometimes be offset against shareholder loans, but only where there is clear evidence that the loan account was intended to reimburse the corporation. However, the court rejected this possibility, finding that the taxpayer had failed to prove that there was a real intention to repay or set off the personal benefits in the year the benefits were received. This finding was supported by the absence of objective evidence, such as journal entries and written documentation. In addition, the taxpayer denied that the expenses were personal until several years after receipt, indicating that he had not intended to repay them at the relevant time. Rather, the court found that the loans were provided to fund operations and growth, not to repay personal benefits.
The court found that Revenu Québec could reassess outside the normal reassessment period for 2014 and 2016, concluding that the taxpayer made a misrepresentation attributable to carelessness or willful omission by failing to report substantial shareholder benefits.
The court also upheld gross negligence penalties totalling over $200,000. The court noted that the repeated omission of accounting for personal expenses paid by the corporation over several years appeared to be a system put in place by the sole shareholder and director to avoid tax. The court emphasized the magnitude of the omission (over 400% of the income reported), the taxpayer’s business experience, the absence of voluntary disclosure and the fact that professional accounting support existed.
ACTION: Documenting and accounting for corporately paid personal shareholder expenses should be done on an ongoing basis.
