City loses fee free tax battle

Canada's highest court won't hear an appeal from the City of Whitehorse for a $137,000 federal tax refund, but at least the city didn't have to pay for the case. On Oct.

Canada’s highest court won’t hear an appeal from the City of Whitehorse for a $137,000 federal tax refund, but at least the city didn’t have to pay for the case.

On Oct. 10, the Supreme Court of Canada refused to hear the appeal, which was brought forward on behalf of the city by Vancouver-based Fairtax Recovery Consultants.

Fairtax had approached the city offering to try to recover some of the money the city paid to employees to cover personal Outside flights between 2004 and 2007. The deal it struck stipulated that Fairtax would only be paid a percentage of any refund it could win. If it lost, the city pays nothing.

Like many businesses and municipalities in the North, Whitehorse offers the flight incentive to employees because of the high cost of traveling Outside on vacation.

Company president Dan Civiero said he was hoping to prove that those costs include GST for the flights that the city was eligible to reclaim.

“What we do for all kinds of clients like municipalities, schools, universities, hospitals and other pieces of the public sector, we go in, look at their commodity taxes and determine where they’ve either overpaid or where we think they’ve under-claimed,” Civiero said.

“We saw this activity, these allowances that they’re giving to employees. We felt they included tax, and we made a claim for them. It was going for a refund on taxes that we thought the city had paid, and in the end it was concluded that there was no tax paid in these expenses,” he explained.

Basically, it works like this:

If, for example, the city gave an employee a city credit card to pay for gas after a trip to Dawson, the city would have paid the tax on that purchase and then claimed that tax as a business expense.

Many businesses, however, simply offer employees a credit of 40 cents per kilometre to drive and fuel their own cars. In that case, the Canada Revenue Agency says that is equivalent to the business buying the gas itself, and would include taxes that could be claimed.

Fairtax sought to argue that the incentive flight should qualify for the tax rebate as well.

Unfortunately for Civiero, the federal tax court saw it differently.

“We come up with an idea. There’s the law sitting there, and there’s the CRA’s interpretation of it. We thought it said something else, and the only way to resolve it is to go to court. If we win, then they have to change their interpretation. In this case it would have changed the interpretation of a major section of the Excise Tax Act,” he said.

If he’d been right, it would have been precedent setting, Civiero said, which is why his company chose to fight it all the way to the Supreme Court.

“The City of Whitehorse was the lead case, but we had a bunch of other clients waiting on this result. That’s why we went to the Supreme Court. It was a question that had an effect on a large population.”

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