Touchette – Tax Court of Canada indicates that ITCs claimed on denied expenses were not income under s. 248(16) since the associated GST had not been expensed

Gagnon J confirmed, as to the majority of the expenses concerned, CRA assessments which denied the deduction by a corporation (“9134”) of expenses incurred by it on the basis that they were for the benefit of its shareholder (“Touchette”) and treated the amount of such expenses as a taxable shareholder benefit to Touchette.

CRA also assessed under s. 248(16) in respect of the input tax credits (“ITC”) that 9143 had claimed for the GST on such expenses, in light of such GST no longer being an (offsetting) deduction, so as to include such ITC amounts in 9134’s income. Gagnon J agreed that such ITCs received by 9134 fell within the scope of s. 248(16) as government assistance. However, he noted that, as s. 248(16) was not a charging provision, whether there was an income inclusion to 9134 turned on whether s. 12(1)(x) applied to it.

In this regard, Gagnon J stated that “paragraph 12(1)(x) can only apply if subparagraphs (v) to (ix) are met” (as to which he indicated that s. 12(1)(x)(vi) was most relevant). (With respect, this is backwards: s. 12(1)(x)(vi) is a provision which, if applicable, excludes the application of s. 12(1)(x) rather than being a provision that must be met in order for s. 12(1)(x) to apply.) He then found that the GST on the expenses had not been claimed as an expense (and instead had been netted against the ITC claims) and stated that “the absence of the GST claim as an expense prevents the application of subparagraph 12(1)(x)(vi),” so that there was no related income inclusion.

Gagnon J also reversed the application of s. 15(1.3) to Touchette (under which CRA had increased the taxable shareholder benefit to him by the amount of the GST on the expenses) without providing detailed reasons.

Neal Armstrong. Summaries of Touchette v. The King, 2025 CCI 195 under s. 248(16) and s. 15(1.3). See also Michael Lubetsky and Andrea Arbuthnot, Tax Court Rejects Grossing Up Shareholder Benefits With ITCs, 27 January 2026.