Vancouver Sun’s excellent business writer David Baines considers tax implications of government paying $6 million in legal fees for convicted criminals Basi & Virk.
$6-million question: Should corrupt aides pay tax for defence? David Baines, Vancouver Sun, June 23, 2012
“Is the $6 million in legal fees that taxpayers paid for the defence of provincial ministerial assistants David Basi and Bob Virk — who pleaded guilty to political corruption in the BC Rail case — a taxable benefit?
“Due to confidentiality rules, Canada Revenue Agency isn’t saying, but case law strongly suggests that it is.
“If it is, then Basi and Virk owe $2.6 million in taxes (assuming the benefit is taxable at the top marginal rate of 43.7 per cent). Of this amount, $880,000 would accrue to the province and the rest to the federal government…
“CRA interpretation bulletin (IT-99R5) states: “Where personal legal expenses of an employee (or of his or her family) are paid or reimbursed by the employer, the amount paid is a taxable benefit to the employee…”
Perhaps this issue explains why the BC Government is in court fighting the Auditor General’s effort to gain full access to documents in the Basi Virk files.
Anyone involved with lawyers in arrangements that move material sums from one party to another will know that income tax considerations are always a focal point. A lawyer reviewing financial agreements who failed to examine and warn the client of potential tax consequences worth millions would almost certainly be guilty of professional misconduct.
The lawyers representing Basi & Virk are among the province’s best so we can be certain that income tax liabilities formed a part of negotiations that resulted in guilty pleas in exchange for financial inducements and sentences with minimal impacts.
Was there a federal provincial agreement to waive tax liabilities? Was there an agreement for the province to cover tax liabilities that surface?
These questions are not likely to be answered until after Christy Clark and friends are sent packing.