Daughter Vanessa Yakobson looks on as her father Anthony Melman, Bay Street financier and guitar collector plays guitar in his music room. Melman donated most of his five million dollar collection of guitars to be auctioned off to raise money for childhood cancer research.Deborah Baic/The Globe and Mail
It was a big year for Anthony Melman.
In 2007, the well-known Bay Street financier and partner at private-equity firm Onex Corp. was preparing for retirement from the firm, winding up certain business affairs and collecting millions of dollars worth of dividends from two holding companies he controlled.
Mr. Melman, described in federal tax court documents as "meticulous" and "exacting," had been pressing his accountants for advice, demanding "that response times from his advisers … be measured in minutes and hours rather than days."
But the documents show he wasn't meticulous enough when it came to his tax liabilities – a costly oversight that would pit him against the taxman and led to his resignation this week from the board of one of Canada's largest companies.
Canadian Pacific Railway Ltd. announced late Tuesday that Mr. Melman had decided to leave its board after the Tax Court of Canada ruled earlier this month that he was negligent for not reporting $18.85-million of taxable dividend income in his 2007 tax return.
Mr. Melman testified that, in April of 2008, he signed his tax return at his home while a taxi waited outside to take the junior accountant who delivered the papers for Mr. Melman's signature back to her office. Mr. Melman said he was on his way out of town and that he didn't review or read the documents he signed.
The discrepancy was staggering. Instead of reporting $18.85-million in taxable dividend income on his 2007 tax return, Mr. Melman declared only $2,582. His taxes due that year were calculated at $367,000, rather than $4.7-million. (Notably, court documents show that Mr. Melman had set aside about $4.7-million in short-term securities with a maturity dated to coincide with the tax deadline.)
The auditor who handled Mr. Melman's return at the Canada Revenue Agency took no more than 10 minutes to notice, reconcile and confirm the omission. "The reassessment was swift and sure," Justice Randall Bocock said in his judgment dated July 8.
Mr. Melman says that his accountants are responsible for the error and has filed a civil claim against them for compensation related to this non-compliance. He argued before the tax court that the firm's alleged gross negligence shouldn't be ascribed to him.
But the judge disagreed and dismissed Mr. Melman's appeal, ordering him to pay imposed penalties, the amount of which is not disclosed in the ruling.
Mr. Melman is an experienced banker who should have detected the omission of the dividends, Justice Bocock said in his ruling, adding that Mr. Melman's actions "definitionally reflect insouciance and an indifferent delegation of responsibility."
Reached on Wednesday by phone, Mr. Melman declined to comment.
"Dr. Melman felt that it was in his best interests for now to resign from the board, so that he can assess his legal options following a recent Tax Court of Canada decision," CP Rail said in a news release. "Dr. Melman stated that he did not want that matter to become a distraction to CP's ongoing mission to be the best run and safest railway in North America."
Mr. Melman, who holds a doctorate in finance from the University of the Witwatersrand in South Africa, joined the CP board in 2012, as part of a sweeping overhaul of the boardroom that had been orchestrated by outspoken activist investor and corporate director William Ackman. The hedge fund titan had won a memorable proxy fight that would later spur a rally in the company's then-slumping share price.
Mr. Melman was a member of the audit and safety operations and environment committees at CP. He is also the president and CEO of Acasta Capital, a boutique merchant bank and advisory firm in Toronto chaired by Belinda Stronach.
Richard Powers, a corporate governance and business ethics professor at the University of Toronto, said the last thing a board needs is a controversial director.
"It's not a right to sit on a board, it's a privilege. In accepting that privilege, there are certain responsibilities that come with it and one of those is to come to the board with clean hands."
In the case of Mr. Melman's departure, Mr. Powers said "it eliminates a possible distraction, although the CP board has certainly had distractions in the past."
Mr. Melman's exit comes at a time of flux at the top of the Calgary-based rail company.
CP said on Wednesday that president and chief operating officer Keith Creel will succeed Hunter Harrison as CEO, beginning July 1, 2017. Mr. Harrison has agreed to stay on for three years in a consulting role.