The founder of Cirque du Soleil will be forced to pay hefty taxes for a highly publicized trip to space he took nearly a decade ago after a judge refuted his claim that it was for business purposes.
The Tax Court of Canada has ruled that the trip to outer space by billionaire Quebec businessman Guy Laliberte in 2009 was a taxable benefit. At issue was a $41.8-million price tag for a trip the Cirque du Soleil’s founder had been reimbursed for as a business expense. The Canada Revenue Agency challenged that and Tax Court Justice Patrick Boyle wrote in a ruling Wednesday he believes a large portion of the travel cost to the International Space Station was indeed a taxable benefit.
“I find that the motivating, essential and overwhelmingly primary purpose of the travel was personal,” Boyle wrote. “I find that the Appellant (Laliberte) is the person who made the decision to travel on his space trip and that his overarching reasons for that decision were personal.”
The judge added 27 reasons to buttress his decision — The judge quoting Laliberte as calling himself a “space tourist” and saying that the trip was the fulfillment of a personal dream in media interviews. Boyle also wrote that Laliberte had publicly talked about his goal to visit space after watching Neil Armstrong walk on the moon and visiting Expo 67 as a child; there was no evidence Cirque du Soleil ever considered sending anyone else on the trip and there were never any plans for similar publicity stunts for brand awareness before or after the 2009 expedition; that Laliberte’s representative negotiated the flight agreement on behalf of Laliberte; and there was no suggestion that any benefit attributed to the Cirque du Soleil was contemplated ahead of the trip.
A spokeswoman for Laliberte, the Cirque’s controlling shareholder in 2009 when he took a Soyuz capsule to the station, said Friday the billionaire was aware of the court decision and was considering his options.
Laliberte was Canada’s first space tourist when he took the 12-day space trip as part of a “social and poetic mission” to raise awareness about water issues for his One Drop foundation. It included a two-hour feature program involving various artists such as Bono and Shakira as well as environmentalists David Suzuki and former U.S. vice-president Al Gore.
The businessman first paid for the trip through a personal holding firm. Two months after his return, he was reimbursed by Creations Meandres, the company that controlled Cirque du Soleil, minus a self-assessed $4-million shareholder benefit. His accountants claimed it wasn’t a personal trip, but rather a “stunt marketing event” to promote the popularity of the circus as well as the foundation, and as such should be deductible as a marketing or promotional expense that far outweighed the trip’s cost.
In response to this week’s ruling, a spokeswoman for Lune Rouge, an entrepreneurial firm Laliberte now heads, issued a statement: “Guy Laliberte already paid all the taxes associated with this project several years ago, upon receipt of the notice of assessment,” Anne Dongois wrote in an email Friday. “We have read the judgment, which recognizes that part of the cost of the project is attributable to business. A question remains with regards to the proportion that is business and the proportion that is to be considered for, potentially, personal benefit. Various options are currently evaluated.”
In his decision, Boyle fixed the amount of the business-related portion of the trip to be about 10 percent or $4.2 million, meaning the remaining 90 percent of the trip’s cost — $37.6 million — was the amount of the benefit.
“Simply put, there is a difference between a business trip which involves or includes personal enjoyment aspects, and a personal trip with business aspects, even significant ones, tacked on,” Boyle wrote. “I have found that this space trip falls into the latter category, and the tax consequences to the business income are considered and determined accordingly.”
A Cirque du Soleil spokeswoman said the organization would have no comment. “As this is a personal matter for Guy, we will not be commenting,” Marie-Helene Lagace said in an email.
Nicolas Simard, a tax law expert and partner at Fasken law firm in Montreal, said the law means the amount owed will have to be paid in full regardless of whether Laliberte appeals.
The matter has been referred back to the minister of National Revenue for reassessment. It’s expected Laliberte will be required to pay nearly $20 million in taxes; however, he will still have the opportunity to appeal the decision.
Simard said the lesson here is that tax agencies are conducting more and more audits, including those of family businesses. “Taxpayers have to be mindful of the expenses paid for or reimbursed by their corporations, like vehicles, time-shares and condos,” Simard said. “They have to be prepared to offer proper justification and offer books and records to demonstrate (they) did not personally benefit from an expense paid for by the corporation.”
{ SOURCE: Bloomberg Canada }
