Skip to main content

The Canada Revenue Agency headquarters in Ottawa is shown on November 4, 2011.Sean Kilpatrick/The Canadian Press

Another former income trust has made peace with the taxman, after the Canada Revenue Agency went after several Canadian corporations to claim taxes from transactions done under their previous structures.

Winnipeg's Exchange Income Corp. said this week it has struck an agreement with the CRA that will see the tax agency drop its claim to taxes it said EIC should have paid after changing its structure from income trust to corporation six years ago. As a result, EIC won't have to pay out any cash, but said Thursday it took a$22.9-million writedown to the value of deferred tax assets on its books. That dragged the company, which has interests in aviation and manufacturing, to a 79 cent per-share loss in the fourth quarter on revenue of $138.7-million.

Under Canadian tax law, companies can't use tax losses acquired when they purchase assets in unrelated businesses, which would have the effect of reducing their profits and taxes payable. Income trusts didn't face the same restrictions, but after they converted back to corporations, the feds went after an estimated 10 to 20, accusing them of tax avoidance, and changed the law to ensure they would be subject to the same change of control rules. In EIC's case, the disputed taxes were related to its purchase of a regional B.C. airline in BC in 2009, which came with close to $200-million in tax losses. The company has since used about half of that amount to reduce its tax bills.

EIC, like others, initially chose to fight but faced a long, drawn out and costly battle with a win-or-lose "binary outcome" that would either see them prevail, or be stuck with a big tax bill, said CEO Mike Pyle. Rather than let the uncertainty hang over the stock, EIC eventually chose to settle. "We didn't want to have years and years of litigation," he said.

Others caught in the same net have taken a similar path, including Quebec food-service wholesaler Colabor Group Inc. and Calgary's Bonterra Energy Corp., which both entered into agreements with the CRA last fall that resulted in no cash outlay but a hit to the value of their deferred tax assets.

Meanwhile, Super Plus Corp. remains at odds with the CRA over an April 2013 tax reassessment that stated the company owed Ottawa $83-million. The tax bill relates to a 2008 transaction in which predecessor Superior Plus Income Fund bought hundreds of millions of dollars in tax losses from fuel cell developer Ballard Power Systems Inc. for $46-million. Superior has challenged the reassessment, which means its case could end up in Tax Court of Canada in the next two years, the company said Thursday in a regulatory filing. "Superior remains confident in the appropriateness of its tax filing position and the expected tax consequences of the conversion and intends to vigorously defend such position," it said.