Tax hit may be eased for Chagnons

The family of Vidéotron founder André Chagnon may get to slash about $180-million from the tax hit on the $1.8-billion sale of Groupe Vidéotron Ltée shares to Quebecor Inc. two years ago if a recommendation by federal officials is acted upon.

The request from the Chagnon family is being studied with an eye to eventually including it in a so-called technical bill amending the Income Tax Act, said federal Finance Department spokesman Jean-Michel Catta.

The Chagnon family asked that the law be changed to allow a more favourable tax treatment of a $1.4-billion donation (from the $1.8-billion sale proceeds) to the family's private foundation, Fondation Lucie et André Chagnon.

An official in the Finance Department's tax legislation division indicated in a so-called comfort letter to the Chagnons last year that it would recommend to the minister that the change be made.

The modification would reduce the capital gains tax hit to the Chagnon family by almost half because the foundation would be deemed a "charitable organization," said Michel Richer, a tax expert at Samson Bélair Deloitte & Touche in Montreal.

He calculates that the family would see a $470-million tax bill trimmed to $290-million. About $123-million of the $180-million in forgone tax would have gone to Ottawa and the rest to Quebec.

In effect, the change would allow the private Chagnon foundation - which receives more than 50 per cent of its capital from one person or group - to be treated as a charitable organization. Charities are normally not allowed to derive more than 50 per cent of their capital from one source.

The 50-per-cent requirement would be replaced by a requirement that the donor maintain an arm's-length relationship "with more than half of the directors, trustees and officers of the organization," Len Farber, general director in the Finance Department's tax legislation division, tax policy branch, says in the letter.

6"From a tax policy perspective, we agree that the income tax provisions should not have the effect of prohibiting or limiting charitable giving. Under the current definition of 'charitable organization,' the capital restriction of not more than 50 per cent could unintentionally have the effect of prohibiting large one-time donations."

A spokesman for the Chagnon foundation said the organization could not comment on the request at this time. Mr. Chagnon could not be reached for comment.

Mr. Catta stressed that the recommended change to the Income Tax Act should not be viewed as a move to accommodate the Chagnons, one of Canada's wealthiest families, but as a broad attempt to encourage such gift giving.

An official in Quebec's Finance Department said the proposed amendment will be studied once it is tabled, but that standard policy is to follow the federal lead in such matters and harmonize provincial laws with those of Ottawa.

Mr. Chagnon, 74, is a former electrician who founded cable company Vidéotron in the 1960s and built it into Quebec's largest cable TV operator.

Quebecor, controlled by the Péladeau family, acquired Vidéotron in a $5.4-billion all-cash hostile takeover in late 2000 after a bitter battle with rival bidder Rogers Communications Inc. of Toronto, to which the controlling Chagnon family had originally agreed to tender its shares.

Last week, Quebecor subsidiary Quebecor Media Inc. and Vidéotron sued former Vidéotron chief executive officer Claude Chagnon - André Chagnon's son - for $23.2-million over allegations of illegal insider trading.

The two companies alleged in statement of claim in Quebec Superior Court that Mr. Chagnon profited from insider knowledge when he received 1.2 million Vidéotron stock options in early 2000, knowing that Rogers was planning to make a friendly takeover offer.

None of the allegations have been proven in court. Mr. Chagnon said in a statement last week that the allegations are groundless.