563768 Alberta, 2026 TCC 181: T4 slips cannot be rewritten after the fact to turn salary into dividends and escape CPP

2026 TCC 181 · Tax Court of Canada

Author: Sas Tullo

This is a short Canada Pension Plan appeal by an owner-managed Alberta corporation. The company had paid its two shareholders, a married couple, as employees and issued T4 slips, but did not remit the employer’s CPP contributions. When the Minister assessed it for the unremitted contributions, the company argued that it had amended the T4 slips to reclassify the payments as dividends, which attract no CPP. The Tax Court dismissed the appeal. The decision is a reminder for every small business owner that the choice between salary and dividends must be made when the money is paid, not when the assessment arrives.

Facts

563768 Alberta Inc. was assessed on August 23, 2022 for failing to remit CPP contributions in respect of its two shareholder workers, William and Faye Tanish, in the amounts of $5,594 for 2020 and $2,071 for 2021, based on the contributions reported on the T4 slips the company itself had filed (para 5). The next day the Minister assessed a further $2,899.40 for January 1 to July 31, 2022, using the 2021 T4 slips as an estimate because no current contributions had been remitted (para 6). The company objected; the Minister reduced the 2022 partial-year assessment to $2,166 and, in November 2023, revised the 2020 assessment so that the company could appeal the full $7,665 of contributions after a credit had been moved between years (paras 7-9). The assessments were confirmed by letters of December 7, 2023 and the company appealed on February 23, 2024 (para 3).

The notice of appeal consisted of a single paragraph asserting that a T4 had been amended on February 4, 2021 to reclassify self-employment income as dividend income and that the CRA had agreed to the adjustment but never processed it (para 1). The Crown’s reply denied any knowledge of such an assessment or agreement (para 2). At the hearing the company’s agent conceded that the Tanishes were employees of the company, and no evidence was led to displace the Minister’s assumptions on that point (paras 12, 15).

Issues

Two issues were identified: whether the Tanishes were engaged in pensionable employment with the company throughout January 1, 2020 to July 31, 2022, and whether the company was entitled to adjust the T4 slips it had issued so as to reclassify the income paid to them from employment income to dividends (paras 10-11).

Holding

The appeal was dismissed without costs and the assessments confirmed on December 7, 2023 were held to be valid (paras 21-22). The first issue was resolved by the company’s concession that the workers were employees in pensionable employment under paragraph 6(1)(a) of the Canada Pension Plan (paras 13, 15). On the second, the company could not reclassify after the fact the character of amounts already reported as employment income (para 20).

The court’s reasoning

Russell J. treated the question as one governed by the Supreme Court of Canada’s statements on retroactive tax planning. He began with Shell Canada Ltd. v. R., [1999] 3 SCR 622, which held that it is not the court’s role to prevent taxpayers from structuring their affairs as they see fit where the Act is complied with, and that a taxpayer “is entitled to be taxed based on what it actually did, not based on what it could have done” (para 17). He then cited Canada v. Fairmont Hotels Inc., 2016 SCC 56, at paragraph 23, for Brown J.’s observation that the Shell principle cuts the other way too, so that taxpayers should not be accorded a benefit based solely on what they would have done had they known better (para 18). Finally he relied on Canada v. Collins Family Trust, 2022 SCC 36, at paragraph 1, which summarized those authorities as standing for the proposition that taxpayers are taxed on what they actually agreed to do and did, “and not on what they could have done or later wished they had done” (para 19).

Applying those principles, the Court accepted that the company was free to distribute income to the Tanishes either as dividends or as employment income, but held that it could not, after the fact, adjust T4 slips already issued in order to change the character of the payments, whether or not the purpose was to avoid CPP remittance obligations (para 20). The Crown’s submission that this would amount to retroactive tax planning was accepted (paras 14, 20). Because the workers were conceded to be employees in pensionable employment, the company was required to deduct and remit CPP contributions on their pensionable earnings as reported on the unadjusted slips (para 13). No costs were sought, and the Court noted that the Canada Pension Plan appeal rules allow costs only for vexatious proceedings (para 22).

Practical implications

The decision adds nothing new to the law, but it applies the Shell, Fairmont Hotels, and Collins Family Trust line with unusual directness to a routine owner-manager situation. Many small corporations decide late in the year, or after year-end, how to characterize amounts already drawn by the shareholders. In my view the case shows the limit of that flexibility: once the company has reported the amounts as salary on T4 slips and the Minister has assessed on that footing, the characterization is fixed, and a subsequent amended slip will not undo it. The same reasoning would apply to the income tax and EI consequences of the original reporting.

Two features of the appeal are worth noting. The company’s pleading rested on an alleged agreement by the CRA to accept the amended slips, but the Court made no finding that any such agreement existed, and the Crown’s reply put it in issue (paras 1-2). Even had it existed, the reasons suggest it would not have assisted, since the question was one of what the company actually did. Second, the concession that the Tanishes were employees removed the only argument that might have succeeded. A shareholder who in fact provides services as an independent contractor or draws dividends from the outset stands in a different position; the problem here was the paper trail the company itself created. Whether an appeal was taken is not verified here.

For owner-managers the practical lesson is to settle the salary-or-dividend question before the payments are made and the slips are filed, and to remit source deductions on whatever is reported. A later change of mind, however sincere, is what the Supreme Court has called wishing one had done otherwise, and the Tax Court will not give effect to it.

This comment is general information, not legal advice. The law may have changed since the decision; check the current text in the tax wiki.

Citation and links

563768 Alberta Inc. v. M.N.R., 2026 TCC 181, judgment dated October 19, 2026, Russell J. (appeal heard September 4, 2024, Calgary). Reasons on the Tax Court’s site. Also on CanLII.