Words and Phrases - "beneficial ownership"
Hargreaves Property Holdings Ltd v Revenue And Customs, [2024] EWCA Civ 365
Whether the UK taxpayer (“Hargreaves”) was liable for failure to withhold UK tax on interest paid by it to a non-arm’s length UK company (“Houmet”) turned on whether, under a domestic UK tax provision, Houmet was “beneficially entitled” to such income. As part of a tax plan to achieve group relief for such interest as well as exemption from UK withholding tax, Houmet purchased the interest coupon and the related principal one or two days before the due date, and was required to pay essentially all of the amount received by it from Hargreaves on the due date to the person from whom it had been assigned the coupon and principal.
In finding that Houmet had no beneficial entitlement to the interest, Falk LJ first stated (at paras. 49, 52 and 54):
[T]he concept of beneficial ownership is well established … . In essence, it means ownership for the benefit of the person in question … .
[C]onsistent with the fundamental requirement of ownership for the benefit of the person in question, or "ownership with benefits", a person who is the legal owner of property will not be its beneficial owner if they do not in fact have any of the benefits of ownership, such that they hold only a "mere legal shell". …
[T]he concept of "beneficial entitlement" should be construed with regard to the authorities that consider the concept of beneficial ownership. In broad terms, therefore, it can be construed as "entitlement with benefits". If the person in question would, in truth, have none of the benefits that entitlement would ordinarily bring, they will not be beneficially entitled.
She applied (at para. 70) this meaning of ““beneficially entitled” to the following findings of the First-tier Tribunal in concluding that Hargreaves’ appeal should be dismissed:
Hargreaves was unable to establish that, viewed realistically, the transactions conferred any benefit of an entitlement to the interest. There was no evidence to suggest that Houmet could have used the funds received for any other purpose [other than to pay for the assignment to it], or that it could benefit from them in any other manner. … Further, Houmet's involvement was entirely ephemeral … . There is no suggestion that Houmet was either at risk as to the amount that might be paid, such that it might not be put in funds to pay for the assignment to it, or that it might be able to benefit from the receipt being higher than anticipated.
18 July 2022 External T.I. 2021-0887121E5 - Feeder Cattle Loan Guarantee Program
As an economic matter, members of a feeder cattle finance cooperative established under the Co-operative Corporations Act used money borrowed on their behalf by the co-op to purchase cattle, and then maintain and feed them until sale and slaughter, so that, for example, they were responsible for all the costs of raising the cattle and maintaining their health. However, to secure such borrowing by the co-op and to provide better insulation from the effects of any member bankruptcy, the documentation of such transactions for the most part treated the co-op as retaining at all times, up to such sale, “all legal, equitable and beneficial ownership in the cattle.”
After indicating that “the definition of inventory in the Act is consistent with the ordinary meaning of the word and that in order to hold inventory for sale a taxpayer must own the inventory,” and that “the primary attributes of beneficial ownership are possession, use, risk and control,” CRA went on to state:
[I]t is our view that based on the information submitted that the beneficial ownership of the cattle is likely with the Members. The Members would treat the cattle as inventory for income tax purposes.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Inventory | members of co-op were likely the beneficial owners of cattle purchased with co-op financing notwithstanding that the documents accorded legal and beneficial ownership to the co-op | 442 |
9 May 2022 Internal T.I. 2018-0790251I7 - 45(2) election and beneficial ownership
Spouses purchased a home in 2006 which they used as their primary residence until 2015, when they moved out and started renting it out. Although both are on title, the husband provided all the purchase funds and has reported all the rental income. They wish to file a s. 45(2) late election respecting the change in use. Regarding whether both were required to make the election, the Directorate stated:
[T]he term “beneficial ownership” is used to describe the type of ownership of a property by a person who is entitled to the use and benefit of the property whether or not that person has concurrent legal ownership. A person who has beneficial ownership but not legal ownership can enforce their ownership rights against the holder of legal title.
… The fact that the wife did not contribute financially towards the purchase of the Home is not necessarily indicative of whether or not she holds a beneficial interest in the property. There is generally a presumption that the holder of legal title of a property is also the beneficial owner of the property, unless the facts support otherwise. …
Generally speaking, beneficial ownership represents ownership of a property under the Act. As such … the taxpayer referred to [in s. 45] would typically be the beneficial owner of the property, whether such ownership is jointly held with another person or otherwise. Therefore, if both spouses are considered to have beneficial ownership … they would both be required to file the election … .
The Directorate went on to note:
[F]iling the election in respect of a housing unit does not require a taxpayer to designate that housing unit as their principal residence for any particular taxation year.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - General Concepts - Ownership | a spouse could be the beneficial owner even though she did not contribute to the property's purchase / owner means beneficial owner | 220 |
Canada (National Revenue) v. Shaker, 2022 FC 407, 2022 FC 408
CRA obtained an interim order to charge the interest of Mr. Shaker, as one of the trustees of a trust (the “VSI Trust”) for a Toronto property (Blue Jays Way), for a personal tax debt. In finding that such charge was not authorized under Rule 458(1)(a)(i), which referenced a judgment debtor’s “interest in real property,” i.e., in finding that the quoted words did not extend to Mr. Shaker’s legal interest in the Blue Jays Way property as trustee, and before ordering the interim charge to be discharged, Walker J stated (at paras. 30, 32-33):
Trust property is not available to the creditors of a trustee where the debt in question is the trustee’s personal debt … . [T[he Tax Debt is not a debt of the VSI Trust and the trust property, the Blue Jays Way Property, is not available to the CRA to satisfy Mr. Shaker’s debt. To conclude otherwise would improperly and adversely impact the interests of the third-party beneficiaries of the VSI Trust. …
The common law recognizes a distinction between legal and beneficial ownership. A person having beneficial ownership in property can enforce their beneficial ownership rights against the holder of legal title. …
Justice Brown … observed that a trustee holds trust property solely for the beneficiaries’ enjoyment and cannot profit personally from their dealings with the trust property or with the beneficiaries of the trust (Valard [2018 SCC 8] at para 17). Justice Côté echoed these principles … in Canada North Group stating “[p]roperty held in trust cannot be said to belong to the trustee because ‘in equity, it belongs to another person’ (Henfrey [[1989] 2 S.C.R. 24], at p. 31)”. It follows that a trustee cannot use trust property to satisfy a personal debt.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Other Legislation/Constitution - Federal - Federal Courts Rules - Rule 458 - Subsection 458(1) - Paragraph 458(1)(a) - Subparagraph 458(1)(a)(i) | a trustee of a real estate trust does not hold any “interest in real property” that can be charged by CRA | 407 |
Canada v. Canada North Group Inc., 2021 SCC 30, [2021] 2 S.C.R. 571
The Crown challenged an order of the Alberta judge in CCAA proceedings regarding the Canada North group of companies that “priming charges” pursuant to s. 11 of the CCAA for counsel fees, costs of the monitor and financing charges of an interim lender would rank in priority to all other security interests and charges, arguing that this priority was contrary to s. 227(4.1). The Crown argued that (1) s. 227(4.1) created a proprietary interest in the debtors’ assets and a court could not attach a super-priority charge to assets that were not the debtors’ property, and (2) in any event, s. 227(4.1) created a security interest that had statutory priority over all other security interests, including super-priority charges.
In the course of rejecting the first ground, Côté J noted that, in addition to the “indeterminacy” of which specific assets were covered by the deemed trust (para. 44), ”the fact that assets subject to the deemed trust are indeterminate makes the trustee’s role effectively impossible to play” (para. 45), so that the deemed trust did not accord with the Civil Law concept of a trust. Similar considerations indicated that s. 227(4.1) did not create a trust that accorded with common law concepts, and the Crown was not significantly assisted by the reference in s. 227(4.1) to the amount covered by the deemed trust being “property beneficially owned by Her Majesty.” In this regard, she noted:
- (at para. 46) that "[i]n the common law, a trust arises when legal ownership and beneficial ownership of a particular property are separated (see Valard Construction Ltd. v. Bird Construction Co., 2018 SCC 8" and that: “As Rothstein J. wrote, because of this fiduciary relationship,’“[t]he beneficial owner of property has been described as ‘the real owner of property even though it is in someone else’s name’ ‘ (Pecore v. Pecore, 2007 SCC 17 … ) .”
- (at para. 49) that: “Another core attribute of beneficial ownership is certainty as to the property that is subject to the trust … .”
- (at para. 52) that: “Traceability is another key aspect of a beneficial interest, since it allows the beneficial owner to enjoy the benefits of ownership, such as income from the property. It also ensures that the beneficial owner is responsible for the costs of ownership."
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 227 - Subsection 227(4.1) | a CCAA court can order a super-charge that has priority over the s. 227(4.1) deemed trust (which in fact does not create any Crown proprietary interest in the debtor’s assets) | 841 |
| Tax Topics - Statutory Interpretation - Interpretation/Definition Provisions | detailed listing of items covered in the 2nd part of a means and includes definition had a limiting effect | 289 |
| Tax Topics - Statutory Interpretation - Interpretation Act - Section 8.1 | Parliament chose to dissociate itself from provincial law in its drafting of a provision | 229 |
Magren Holdings Ltd. v. The Queen, 2021 TCC 42, aff'd on other grounds 2024 FCA 202
The appellants, were private companies controlled by a resident individual (Grenon), whose RRSP held 58% of the units of a publicly traded income fund (“FMO”). They engaged in a series of transactions that were intended to result in the realization by them of substantial capital gains (resulting in additions to their capital dividend accounts (“CDAs”), that were immediately distributed by them), followed by the realization of largely offsetting capital losses later that day.
In very general terms, significant elements of the series of transactions included:
- Grenon’s RRSP transferring its units of FMO to a newly-formed unit trust (“TOM” – which was found in Grenon not to qualify as a mutual fund trust) – in exchange for units of TOM representing close to 100% of the issued and outstanding TOM units.
- The appellants acquiring such FMO units from TOM in consideration for issuing $161M in promissory notes.
- Various transaction being engaged in “beneath” FMO that resulted in capital gains being realized on the indirect transfer of subsidiary entities to a new unit trust (“New FIF”) that was intended to be the replacement public vehicle for FMO and those gains being allocated to or otherwise realized by FMO.
- The public transferring their units of FMO to New FIF in exchange for units of New FIF.
- After various steps to clean up the structure, FMO distributing essentially all its assets (being units of New FIF) to the appellants, and treating this as a distribution of the capital gains realized by it as described above. (This was the capital gain referred to above that was treated as CDA additions to be distributed.)
- The units of FMO being repurchased by FMO for nominal consideration. The appellants had full (FMV) cost for their FMO units when acquired in step 2, and the capital gains distributions did not reduce the ACB of their units by virtue of s. 53(2)(h)(i.1)(A) and (B)((I). Accordingly, such repurchases resulted in the realization of largely offsetting capital losses (and, in light of the intervening distribution of the transitory increase to their CDAs, also resulted in negative CDAs.)
In finding that the appellants had not acquired the FMO units in step 2 above (which continued to be beneficially owned by the RRSP) and, therefore, did not realize a capital loss in step 6 above, Smith J stated (at paras. 174, 176):
Since it was intended, as admitted by the Appellants, that the FMO units allegedly acquired from TOM on December 23, 2005 would be repurchased for cancellation on December 28, 2005 resulting in the alleged capital losses, I find as a fact that the Appellants had “absolutely no discretion” ... as to the disposal of those units. The only role of the Appellants was to hold legal title to the units for a few days. I find that those units were to be held on a bare trust basis only to be disposed of a few days later at a substantial loss. It was understood that the Appellants would not take any other steps. All of these transactions were pre-ordained. …
[I]t cannot be said that the Appellants enjoyed “the three key attributes of ownership, namely, risk, use and possession” … .
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 185 - Subsection 185(3) | Part III tax assessments of distributions of gains that were denied outside the Part I tax normal reassessment period were not statute-barred | 314 |
| Tax Topics - Income Tax Act - Section 185 - Subsection 185(1) | no requirement to issue separate assessment for each election, and no remedy for inordinate time to issue assessments | 396 |
| Tax Topics - General Concepts - Sham | transactions did not result in real capital losses | 306 |
| Tax Topics - Income Tax Act - Section 184 - Subsection 184(3) | election was not available where a CDA sham | 365 |
| Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) | no CDA addition where capital gains were not real | 373 |
Singh v. The Queen, 2019 TCC 265
Before finding that there had been a transfer to the taxpayer of ½ of the beneficial ownership of the family home for s. 160 purposes from her husband (rather than her having been the full beneficial owner all along), MacPhee J adopted (at para. 24) a previous judicial formulation of the concept of beneficial ownership, viz:
The primary attributes of beneficial ownership include possession, use and risk. Therefore, in determining whether a person has beneficial ownership in a property, one should consider such factors as the right to possession, the right to collect rents, the right to call for the mortgaging of the property, the right to transfer title by sale or by will, the obligation to repair, the obligation to pay property taxes and other relevant rights and obligations.
Here, the husband had had a significant degree of mutual control over the home, his income had contributed significantly to servicing the mortgage, and the funding of the down payment with a gift from her parents was not dispositive.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 160 - Subsection 160(1) | beneficial ownership in light of control, financing burden and title/cascading application available | 512 |
| Tax Topics - General Concepts - Fair Market Value - Land | FMV of home potentially reduced by spouse continuing to live there | 74 |
Gillen v. The Queen, 2017 TCC 163, aff'd 2019 FCA 62
A limited partnership was found to have immediately transferred the beneficial ownership of applications to the Saskatchewan government for potash exploitation rights (the “Purchased Applications and Purchased Permits”) to a corporation (“Devonian”) immediately upon entering into a sale agreement of the Purchased Applications and Purchased Permits with Devonian. In this regard, D’Arcy J referred (at para. 95) with approval to the finding in Prévost Car, 2008 TCC 231 (aff'd 2009 FCA 57) that “the beneficial owner is the true owner who enjoys and assumes all the attributes of ownership, without having to be accountable to anyone, including to the legal owner, as to how the property is used or dealt with.”
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 110.6 - Subsection 110.6(14) - Paragraph 110.6(14)(f) - Subparagraph 110.6(14)(f)(ii) | property was not used in a business for s. 110.6(14)(f)(ii) purposes when it was beneficially acquired and dropped-down on the same day | 364 |
| Tax Topics - General Concepts - Effective Date | relation-back theory applied: closing retroactively confirmed previous beneficial ownership transfer | 255 |
6 December 2011 TEI Roundtable, 2011-0427101C6 - Seizure of Property
When asked to comment on the requirement in s. 79.1(2)(a) that a creditor have acquired "beneficial ownership" of property, CRA quoted the following passage from IT-437R, para. 4:
Beneficial ownership must be distinguished, however, from the other types of physical possession of property which a person may enjoy. For example, a tenant of a property, or a person who is allowed to occupy it only because the true owner has no objection, is not the beneficial owner of the property. In determining whether a person has beneficial ownership, one should consider such factors as the right to possession, the right to collect rents, the right to call for the mortgaging of the property, the right to transfer title by sale or by will, the obligation to repair, the obligation to pay property taxes and other relevant rights and obligations. Not all of these incidents of ownership need occur concurrently before it is concluded that the person has beneficial ownership of the property
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 79.1 - Subsection 79.1(2) | 148 |
S1-F3-C2 - Principal Residence
Meaning of beneficial ownership
2.80 ...The term beneficial ownership is used to describe the type of ownership of a person who is entitled to the use and benefit of the property whether or not that person has concurrent legal ownership. A person who has beneficial ownership rights but not legal ownership can enforce those rights against the holder of the legal title. For example, beneficial ownership frequently arises when property is held in trust for a person in circumstances where, according to the terms of the trust, that person has authority to instruct the trustee to deal with the property as requested....
2.81 Beneficial ownership must be distinguished, however, from the other types of physical possession of property which a person may enjoy. For example, a tenant of a property, or a person who is allowed to occupy it only because the true owner has no objection, is not the beneficial owner of the property. In determining whether a person has beneficial ownership, one should consider such factors as the right to possession, the right to collect rents, the right to call for the mortgaging of the property, the right to transfer title by sale or by will, the obligation to repair, the obligation to pay property taxes and other relevant rights and obligations. Not all of these incidents of ownership need occur concurrently before it is concluded that the person has beneficial ownership of the property, which is a question of fact in each particular case....
Williams v. The Queen, 2005 DTC 1228, 2005 TCC 558
The taxpayer was found to continue to be the beneficial owner of shares that he transferred to a trust - of which he was one of the three trustees but of which he was found (under a poorly drafted trust agreement) to be the sole beneficiary until such time as, with his consent, any further beneficiary was added - notwithstanding that he had no control over the distribution of the trust property until the trust matured on its 21st anniversary. Woods, J. noted (at p. 1232) that "although the term 'beneficial ownership' is often used in the sense of full ownership except bare legal title", the ordinary meaning of the term is quite broad and includes a beneficiary's interest in trust property. This broad meaning was reflected in s. 248(3)(f).
Accordingly, there was no disposition of the shares.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - General Concepts - Ownership | sole beneficiary was beneficial owner | 277 |
Covert et al. v. Minister of Finance of Nova Scotia, [1980] CTC 437, [1980] 2 S.C.R. 774
The testator left the residue of his estate to an Alberta corporation which was a wholly-owned subsidiary of another Alberta corporation. The Alberta parent's shares were owned by the testators 12 grandchildren resident in Nova Scotia. S.2(5) of the Succession Duties Act (Nova Scotia) provided that where a non-resident corporation by reason of the death of a deceased acquired or became "beneficially entitled" to property of the deceased each of the shareholders of the corporation was deemed to be a successor of property of the deceased.
In finding that this provision applied notwithstanding the interposition of the subsidiary between the Alberta parent and the estate, Martland J. stated (at pp. 793-794):
"In my view, the corporation is no less 'beneficially entitled' when the property is held by its wholly-owned subsidiary as when it is held in trust for it. Its legal entitlement is even more immediate as it does not have to call upon a third party to perform its obligation as trustee. It only has to exercise its rights as sole shareholder of the subsidiary."
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Statutory Interpretation - Drafting Style | 82 |
Williams v. The Queen, 2005 DTC 1228, 2005 TCC 558
The taxpayer was found to continue to be the beneficial owner of shares that he transferred to a protective trust of which he was the sole beneficiary and one of the three trustees. The trust deed provided broad powers of management to the trustees, accorded them the discretion to pay out income and capital to the taxpayer at any time and provided that the trust property was to be distributed no later than the 21st anniversary of the trust. Woods, J. noted (at para. 36) that "although the term 'beneficial ownership' is often used in the sense of full ownership except bare legal title", the ordinary meaning of the term is quite broad and includes a sole beneficiary's interest in trust property. This broad meaning was reflected in former s. 248(3)(f) (respecting Quebec properties, and similar to s. 248(3)(e)(iii) of the current Act), which she stated (at para. 43) "is designed to provide harmonization of transactions across the country." Although, in contrast to the terms of the trust at issue in Trans-Canada Investment, the taxpayer here did not have the right to require delivery of the trust corpus at any time, this merely indicated that the taxpayer in that Supreme Court decision may have had ownership, rather than merely beneficial ownership, of the shares held in the trust in that case.
Accordingly, there was no disposition of the shares (on the basis that, under the exclusion in s. (v) of the definition of “disposition,” the transfer of legal ownership occurred "without any change in the beneficial ownership") and, therefore, no taxable capital gain was realized by the taxpayer.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Disposition | beneficial owner of shares held in a trust | 141 |
IT-170R "Sale of Property - When Included in Income Computation"
Time that entitlement to proceeds arises
6. A "condition precedent" is an event (beyond the direct control of the vendor) that suspends completion of the contract until the condition is met or waived and that could cancel the contract "ab initio" if it is not met or waived. Two examples of conditions precedent are
(a) a condition in a contract for the sale of a hotel business that provides that the transfer of ownership is not to take place until the purchaser obtains a liquor licence, and
(b) a condition in a contract for the sale of land that suspends completion until the purchaser's solicitor has approved the vendor's title to the property.
7. Formal agreements of purchase and sale are frequently explicit as to the date of exchange and, unless circumstances indicate that a specified date was changed or was not the true intent of both parties, the date so specified is presumed to be the date of entitlement. Where the date of exchange is not expressly agreed between the parties, the time that the attributes of ownership pass from the vendor to the purchaser is presumed to be the date of entitlement. Since this test is the same test that is applied to determine the date of acquisition of depreciable property by a purchaser, the comments contained in IT-50R are equally valid in determining a vendor's date of disposition in these cases.
8. Since possession, use and risk are the primary attributes of beneficial ownership, registration of legal title alone is of little significance in determining the date of disposition. Factors that are strong indicators of the passing of ownership include:
(a) physical or constructive possession (refer to IT-50R),
(b) entitlement to income from the property,
(c) assumption of responsibility for insurance coverage, and
(d) commencement of liability for interest on purchaser's debt that forms a part of the sale price.