The Tax Court of Canada has ruled that a trip to outer space by billionaire Quebec businessman Guy Laliberté 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.
The judge added 27 reasons to buttress his decision — notably that Laliberté had long been interested in space travel and there was no evidence the Cirque du Soleil was considering sending anyone else to space; that Laliberté’s representative negotiated the flight agreement on behalf of Laliberté; and there was no suggestion that any benefit attributed to the Cirque du Soleil was contemplated ahead of the trip.
A spokeswoman for Laliberté, 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.
Laliberté 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 Laliberté now heads, issued a statement.
“Guy Laliberté 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% or $4.2 million, meaning the remaining 90% 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-Hélène Lagacé 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.
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.”