The Pro Bono Cause
Base Finance operated for 30 years under the guise of a mortgage investment business. However, from at least 2006, it simply used new investors’ money to pay “interest” and principal to existing investors. More than 300 investors lost $137 million. This includes a retired couple who lost approximately $2 million in Alberta’s largest ponzi scheme. Former Osler partner Justice Colin Feasby recently sentenced the fraudster to 10 years in prison.
The Osler Pro Bono Connection
The Canada Revenue Agency (CRA) rejected the taxpayers’ claim for an allowable business investment loss (ABIL). At first it denied Base Finance was a Canadian-controlled private corporation (CCPC), but ultimately agreed Base Finance was a CCPC. The CRA argued that the agreement (the one the fraudster never carried out) was not that the taxpayers were loaning money to Base, but rather that Base was acting as an intermediary and the taxpayers’ investment was in third parties. This meant, in their view that the taxpayers’ investment was not “debt” of a CCPC. (Since the third parties were imaginary, they could not have been CCPCs).
Justice Visser ruled for the taxpayers, accepting the arguments of Osler’s Gerald Grenon, partner, Tax, and Theo Stathakos, associate, Tax Litigation, that their oral evidence should be accepted and the documents that Base had provided them did not substantiate the Crown’s position.
Volunteer Reflections
“The Tax Court took the case very seriously and had clearly prepared accordingly. It had good insight into the wrongdoings of Base Finance and reached what we believe was the correct decision. It’s our hope that CRA will treat all investors appropriately and that investors caught in this long-running scam will not suffer the added injury of having the tax authorities deny tax recognition of the losses they suffered.”
Gerald Grenon
Partner, Tax
ggrenon@osler.com
Calgary
Theo Stathakos
Associate, Tax Litigation
tstathakos@osler.com
Vancouver