$15K tax bill follows immigrant program ruling
A P.E.I. business has been hit with an unexpected $15,000 tax bill after Revenue Canada ruled money from an immigrant investment program is a fee for service, not investment.
Ron Frid of York Greenhouses and Garden Center, north of Charlottetown, received the tax bill a couple of weeks ago, stemming from an audit of a transaction from 2008.
In that year Frid said he received a letter from his accountant — Arsenault, Best, Cameron and Ellis — telling him about an opportunity to have money invested in his business.
"Opened it up and it said you are entitled to one unit for the PNP program on Prince Edward Island," said Frid.
"Now, being the person I am, I really don't agree with government interfering into private business, so I tore it up because it said free money."
A week or two later Frid said he received a call from Irwin Ellis, asking why he had not responded to the offer. Frid said Ellis talked him into signing up for the program.
The immigrant investment section of the provincial nominee program had been running on P.E.I. since 2001, and similar programs were running in other provinces across the country. It allowed potential immigrants to move to the front of the queue for moving to Canada by making a $200,000 investment in a P.E.I. business. One unit was equal to one immigrant investing in your business.
It operated quietly, attracting a few hundred immigrants a year, but early in 2008 the federal government announced it was closing down the program. The province responded by ramping up promotion, attracting 2,000 potential immigrants to pay into the program before Ottawa shut the door in early September of that year.
Spreading the money around
As the owner of the business receiving the presumed investment, Frid said he received far less than the $200,000 promised.
Ellis connected him with lawyer Ken Clark, Frid said, one of seven intermediaries appointed by the province to facilitate PNP investments. Intermediaries received an upfront fee of $55,000. Another $55,000 would go to the accounting firm. Further money went to the province in the form of deposits as a guarantee the immigrant would remain on P.E.I. and learn English or French.
"I was told that the unit consisted of $55,000," Frid said of the money that was supposed to come to him.
"Accountants' fees, lawyers' fees and an insurance [fee] in case the PNP immigrant left the province totalled up to X number of dollars, which left us with a cheque of $39,000, which was to be spent on capital investments in the business. Which we done and that all can be seen in the books that we carry."
Investment or revenue?
The Canada Revenue Agency is now saying that money was not an investment, it was revenue that Frid has to pay taxes on.
Statement from Canada Revenue Agency
The only benefit or return on the share issuance received by the immigrant investor is access to Canadian immigration papers. As such, the PEI business in participating in the program is actually receiving a fee for service, taxable under Section 9 of the ITA as business income, which were rendered in assisting the immigrant to receive their immigration papers … The immigrant enters into the PEI PNP process as a means of immigrating to Canada and for anyone without this intention there would be no logical reason to make an investment such as this.
"CRA went on a warpath and audited our books and came back telling us that we were assessed $75,000 because the program was set up in such a way that this was going to be an income that we received in 2008," said Frid.
CRA said there was no reason for the potential immigrant to invest in the business other than to obtain a Canadian visa. Therefore it was not an investment at all, it ruled, but a service being offered by the business for which a fee was paid.
Two weeks ago CRA sent Frid a tax bill for almost $15,000.
"I, of course, got a hold of my accountant and I was informed that any clients of Ken Clark were being investigated and red flagged by the CRA," said Frid.
Sources tell CBC News so far only those companies involving Ken Clark have been assessed the extra $15,000 per PNP unit in taxes. That involves 123 companies that received a total of 232 units.
Throughout the eight years that PNP operated on P.E.I. 1,055 corporations participated.
Government in the dark
P.E.I. Innovation Minister Allan Roach told CBC News Thursday he had not heard about problems with how CRA was categorizing money coming to businesses through PNP.
"I haven't had anyone speak to me about that," said Roach.
"The companies, I understand, who received PNP monies had lawyers and accountants that they worked with through the process so I would leave that in the hands of CRA, the companies, their lawyers and their accountants."
Roach said the CRA situation has nothing to do with the province, though it was the provincial government that licensed the seven intermediaries, including Ken Clark, and had to approve the investment plans.
Frid would like to know who is accountable for him facing an unexpected $15,000 tax bill.
"Who is responsible for this mistake? We didn't do anything wrong. We followed two lawyers, an accountant and the provincial government," he said.
"Every time I ask the question, was it a lawyer, was it an accountant, was it the government? Nobody takes responsibility ... I am stuck with a bill of $15,000. I have to come [up] with that by May the second to get the CRA off my back."
Roach said he has had no companies come to him on the issue. Irwin Ellis declined requests from CBC News for an interview. Ken Clark is out of the country and has not responded to requests.
CRA officials said it's a personal tax problem and it can't breach confidentiality, so it won't comment.