Several British Columbia property companies, linked to prominent developer Terry Hui, are taking legal action against the federal government. They are challenging a substantial $91 million tax bill issued by the Canada Revenue Agency (CRA) after a 12-year audit, arguing it could jeopardize future construction projects.
Key Takeaways
- Property firms are seeking to prevent the minister of national revenue from issuing tax assessments from 2007 to 2013.
- The companies claim the tax bill, plus interest, would cause "irreparable harm" and prevent them from planning for future developments.
- The dispute centers on transactions involving interest payments routed to related corporations in Luxembourg, which the CRA investigated for potential tax avoidance.
- The firms cite a Supreme Court of Canada ruling in a similar case (Alta Energy Luxembourg) that supported treaty interpretations over general anti-avoidance rules.
- The CRA's actions are also questioned, with allegations of improper conduct to maximize recovery near the fiscal year-end.
Legal Challenge Launched
Vancouver-based Adex Securities Ltd., One West Holdings Ltd., and an affiliated numbered B.C. company have filed an application in Federal Court. Their aim is to halt the issuance of tax assessments covering the period from 2007 to 2013. The audit, which commenced in 2013, focused on payments made to related corporations based in Luxembourg, with the CRA investigating potential tax avoidance and "treaty abuse."
Impact on Future Construction
The companies contend that being forced to pay the $91 million tax debt, along with accrued interest, would result in "irreparable harm." They argue that they could not have reasonably anticipated or planned for such a significant financial obligation without prior notification. A lawyer for the developers indicated that while no current projects are affected, the financial strain could lead to the halting of one or two future construction projects if the companies lose access to $91 million in working capital.
Reliance on Precedent
Attorneys for the property firms highlighted that the transactions in question are similar to a tax structure previously upheld by the Supreme Court of Canada. In 2021, the Supreme Court ruled in favor of Alta Energy Luxembourg, stating that Canadian tax authorities could not use general anti-avoidance rules to override treaty agreements. The court found that Canada had agreed to forgo taxing certain entities in Luxembourg in exchange for economic benefits, and tax authorities could not unilaterally alter this bargain.
Allegations Against CRA
Furthermore, the application includes allegations that the CRA acted improperly during the audit. The companies claim that tax officials attempted to maximize the amount recovered near the end of the fiscal year, potentially to improve performance metrics amidst threats of federal job cuts. The federal government has not yet filed a response to the court application, and a hearing date has not been scheduled.
