Laliberté v. R. – TCC: Cirque du Soleil sends its boss over the moon (almost) but CRA is not amused – a reassessment darkens his re-entry

Laliberté v. R. – TCC:  Cirque du Soleil sends its boss over the moon (almost) but CRA is not amused – a reassessment darkens his re-entry

https://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/344335/index.do

Laliberté v. The Queen (September 12, 2018 – 2018 TCC 186, Boyle J.).

Précis:  M. Laliberté, the Appellant, is the founder of Cirque du Soleil and in 2009 (the relevant tax year) was its controlling shareholder.  In 2009 Cirque paid for M. Laliberté spending 12 days on a trip to and from the International Space Station.  While in space he participated in a fund-raising drive for One Drop Foundation/Fondation One Drop (“One Drop”), a charity in support of the availability of clean pure water that is closely allied with Cirque.  M. Laliberté  reported a $4,000,000 shareholder benefit.  CRA was not amused and assessed M. Laliberté for a $41.8 million shareholder benefit representing the entire cost of the space trip.  M. Laliberté appealed to the Tax Court arguing that none of the cost should be taxable in his hands.  Justice Boyle held that on the very limited evidence before him the most he could allocate to a business portion of the cost of the trip (and therefore not taxable) was 10%.  He held that the balance was taxable in the hands of M. Laliberté and awarded costs to the Crown.

Decision:   This is obviously a case of first impressions both from the novelty of space tourism and the incredible entrepreneurial success of Cirque under the leadership of M. Laliberté.  Cirque may well be the world’s ultimate producer of spectacle and there was nothing about this space trip in 2009 that seemed to fall outside the penumbra of that tradition of spectacle.  The difficulty for poor Justice Boyle is that no one appears to have attempted to adduce evidence before the Tax Court of the synergies between the vaunted success of Cirque in breath-taking situations and the chutzpah of the company in staging this spectacular event in 2009.  Justice Boyle was limited by the evidence before him:

[52]  As stated above, I find a benefit was conferred on the Appellant by his family holding company, 2739-2224 Québec, either conferring the benefit directly when it signed the Space Flight Agreement and/or when it paid Space Adventures for the trip he had arranged for primarily personal purposes, and/or by allowing all or part of the benefit to be provided indirectly by another Cirque du Soleil company, Créations Méandres, when it reimbursed the Appellant’s family holding company. I find this benefit was conferred on him qua controlling shareholder. This is sufficient to engage each of subsection 15(1) and subsection 246(1).

[53]  I am simply unable on the limited evidence from the Appellant on the valuation and allocation issues to make a very good determination of the portion of the cost of the space trip taken by the Appellant that can be reasonably regarded as having been business-related.

[54]  That said, I do recognize that the Cirque du Soleil promotional business‑related activities in which the Appellant participated while on his trip were most probably more valuable having been from space than had they been from anywhere on earth. For that reason I could conclude that an allocation in the range of 0 to 10% of the cost of the space trip would be a reasonable charge to Cirque du Soleil. This range is limited by the evidence the Appellant presented on the issue of value.

[55]  I am fixing the amount of the business-related portion of the cost at the top of that range at - $4.2 million. That is in the range of the amount of the direct incremental costs of the promotional activities of Cirque du Soleil and One Drop. I find that the remaining 90% of the cost of the trip, being $37.6 million, was the amount of the benefit conferred on and enjoyed by M. Laliberté.

[56]  While the facts of this case are novel in some respects, it raises the relatively common and legally straightforward issue of benefits conferred by a company on a shareholder. I have approached my decision in this case as I would have had it involved an owner-manager of a business who decided that he personally wanted to go on a cross-country trip, and then decided that, he would stop in to visit business clients and suppliers and potential clients and potential suppliers along the way. One would expect his incremental direct costs associated with his business promotion activities and sidetrips should be deductible, but that little, if any, of the trip itself would be. If he could have his company pay for his whole trip, even if it did not deduct the cost for tax purposes, it would allow him to pay for his trip in pre-tax dollars. The shareholder benefit provisions exist for just such reasons, and going offside can often result in double taxation once corrected.

[57]  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. 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.

I think Justice Boyle’s decision was perfectly correct based on the evidence before him.  If, however, counsel for the Appellant had called evidence showing the unique position of Cirque in the worldwide entertainment industry and the fact that the 2009 space trip fit squarely within the four corners of its success in the business of spectacle, the result would, I think, have been perceptibly different.  Perhaps not a 0% shareholder benefit but something more in keeping with the realities of public perception.  One shudders to think of a Cirque production staged to CRA’s standards:  safety harnesses, bicycle helmets and padded walls perhaps.