CRA closes tax loophole with win over billionaire’s companies
From Saturday’s Globe and Mail
Last updated Friday, Dec. 16, 2011 7:20PM EST
The Supreme Court of Canada has ruled that a series of transactions by billionaire Li Ka-Shing’s holding company Copthorne violated the “spirit” of the tax avoidance statute. (REUTERS)
A Supreme Court of Canada ruling in a complex case involving companies controlled by billionaire Li Ka-Shing and his son Victor Li gives the government new legal tools to challenge corporate transactions crafted to avoid taxes.
The case, Copthorne Holdings Ltd. v. Canada, centred on the application of a key provision for the Income Tax Act, known as the General Anti-Avoidance Rule or GAAR.
But it’s sending ripples of concern through corporate Canada. Legal experts said the importance of the case extends far beyond Li Ka-Shing to potentially hundreds, if not thousands, of business transactions in Canada. It also gives the Canada Revenue Agency vast legal authority to question tax savings deals.
“Our phones have been ringing off the hook with clients calling to ask for advice,” said Chia-yi Chua, a tax partner and litigator at McCarthy Tétrault in Toronto.
In a unanimous decision Friday, the court ruled that a series of transactions by Copthorne, a Li family holding company, violated the “spirit” of the tax avoidance statute and was therefore “abusive.” The case involved more than $140-million in withholding taxes on income taken out of the country.
Mr. Chua said the ruling sets the standard for what he called a “judicial smell test.” Companies are still allowed to arrange their affairs to minimize tax, but the ruling lowers the bar for what’s considered abuse under the tax avoidance statute.
The ruling is likely to embolden the CRA when questioning transactions and will boost the role of the Tax Court of Canada in settling disputes, according to Mr. Chua.
At the same time, the Supreme Court also directed lower courts to “conduct an objective, thorough and step-by-step analysis and explain the reasons” for applying the GAAR statute.
Friday’s ruling will affect a broader universe of business transactions, agreed David Spiro of Fraser Milner Casgrain LLP. He said the CRA is probably looking at a few dozen large transactions similar to those in the Copthorne case, but the implications of the ruling would apply to many more types of business deals.
The ruling sets the standard that just because a transaction isn’t specifically prohibited, doesn’t mean it’s legal under the tax avoidance statute, he said. The ruling limits a commonly used legal loophole, Mr. Spiro explained.
“The ruling has application to any kind of transaction where one stickhandles around specific provisions of the Income Tax Act,” Mr. Spiro explained.
Gatti’s fortune belongs to his widow, judge rules
Montreal – The Canadian Press
Last updated Friday, Dec. 16, 2011 7:50PM EST
Amanda Rodrigues, widow of former boxing champion Arturo Gatti, arrives at court in Montreal on Sept., 6, 2011, where a civil case has begun to determine the beneficiary of Gatti’s estate. (Graham Hughes/THE CANADIAN PRESS)
A judge has weighed in with a clear, unequivocal decision in a legal dispute over who should inherit late boxer Arturo Gatti’s money: his widow, Amanda Rodrigues.
Friday’s verdict came after a deeply personal legal battle over the $3.4-million fortune that pitted the widow of the world-champion Canadian boxer against his mother and youngest brother.
The judge ruled that Mr. Gatti’s last will – signed in 2009 – was legitimate and that Ms. Rodrigues did not manipulate him into signing it.
“Mr. Gatti voluntarily signed the will in 2009 and named Ms. Rodrigues as his sole heir,” Quebec Superior Court Justice Claudine Roy wrote. “Ms. Rodrigues did not control or manipulate Mr. Gatti in order to benefit herself.”
The Gatti family, along with the mother of his other child, have argued that the boxer was duped into signing that will just weeks before his mysterious death at a Brazilian resort in 2009.
That will left everything to Ms. Rodrigues.
The family argued that an older will should have been considered valid. That U.S. will from 2007 leaves everything to them, but a signed copy has never been found.
The Gatti family does not accept conclusions that the former champion killed himself; during the recent civil trial, their legal team pummelled Ms. Rodrigues with questions about the lead-up to his death.
Ms. Rodrigues had been arrested in the case, then released without charge by Brazilian authorities.
That death was ultimately ruled a suicide by Brazilian authorities and a recently released Quebec coroner’s report says there are no obvious signs of foul play.
But Ms. Rodrigues’ victory in a Quebec courtroom is by no means the end of her legal battles.
There is a court date in early January in New Jersey to deal with a wrongful-death suit by Mr. Gatti’s former girlfriend Erika Rivera, the mother of his daughter, Sofia.
There is also a trial in Florida scheduled for May involving a man suing Mr. Gatti for injuries he allegedly received from the late boxer.
Ms. Rodrigues was not in Montreal on Friday, but her lawyer, Pierre-Hugues Fortin, said she was relieved about the judgment.
“She was very pleased by the conclusions,” Mr. Fortin said. “But there is still a lot of work for her to come.”
During the civil trial, the judge expressed concern that the fortune was being whittled away by all the legal wrangling, including separate cases in the United States.
Mr. Fortin said there is still money left and, despite the legal entanglements, that the estate is worth $3-million and $3.5-million. Until the legal issues are resolved, the estate assets, which are scattered between the United States and Canada, will remain partly frozen.
The couple’s rocky relationship – exacerbated by heavy drinking on Mr. Gatti’s part – was central to the case.
Madam Justice Roy wrote in her verdict that while the couple had its share of fights and reconciliations, they were still together when Mr. Gatti died. And she said there’s no evidence Ms. Rodrigues did anything wrong.
Questions about the night of Mr. Gatti’s death had been limited by the judge, who pointed out during the trial that it was a civil case involving a will, not a homicide case.