Companies controlled by B.C. property developer Terry Hui have gone to Federal Court alleging the Canada Revenue Agency engaged in a “pattern of misconduct” while moving to collect tax debts totalling nearly $330 million. Terry Hui’s CRA tax dispute, rooted in an audit that began in 2013, now spans at least three court applications filed this year.
Five companies, debts dating back to 2007
Five companies within Hui’s real estate development group are targeted in the CRA audit, according to the court application: Adex Securities, One West Holdings, a B.C. numbered company and two Luxembourg-based companies. Hui is best known in British Columbia for leading Concord Pacific Developments, and the application says the group is involved in capital-intensive real estate projects in Toronto, Vancouver and Calgary.
The companies filed the application in Federal Court this month, claiming the government has wrongfully moved to collect on the debts, most of which is accrued interest on amounts dating as far back as 2007. According to the application, the companies received tax debt assessments this year: Adex owes $45 million plus interest of more than $65 million, while the two Luxembourg-based companies together owe more than $92 million and a further $127 million in interest.
What the companies are asking the court to do
The companies want the court to stop the government from collecting on the debts until a related case filed earlier this year is concluded. They also object to the CRA seeking a $115 million security payment from Adex.
In the application, the companies argue that being required to pay that amount, without being allowed to defer, will cause the group to “lose significant capital that is currently being used to fund active development projects.” The filing claims the companies will suffer “irreparable harm” if forced to pay, and that with no advance notice from the CRA they “could not have reasonably planned for a debt … of this magnitude.”
The misconduct allegation is the companies’ own characterization of the agency’s conduct. They claim CRA officers acted outside established policies and procedures and “without regard to the impact of their actions on taxpayer businesses.” None of the allegations has been tested in court.
An audit built on the Luxembourg treaty
The CRA audit began in 2013, according to the application, and focused on transactions that relied on Canada’s tax treaty with Luxembourg. In an earlier application in the same dispute, reported in February, Adex, One West and the numbered company sought to halt the minister of national revenue from issuing assessments for the 2007 to 2013 tax years; that filing said the transactions involved routing interest payments to related corporations in Luxembourg, and the developers maintained the payments were not made for tax avoidance purposes.
Lawyers for the companies were not immediately available for comment on the new application. Justin Kutyan of KPMG Law in Toronto, acting for the developers, told The Canadian Press earlier this year that the transactions in the case were similar to a tax structure upheld by the Supreme Court of Canada in 2021. The CRA, asked about tax treaty abuse, said it did not have a spokesperson available for an interview.
The Supreme Court precedent behind Terry Hui’s CRA tax dispute
The 2021 ruling, in the Alta Energy Luxembourg case, went 6-3 in the taxpayer’s favour. Alta Energy had claimed an exemption on a capital gain of more than $380 million under Canada’s treaty with Luxembourg, which the decision itself described as “well known as an international tax haven.” The majority found that Canadian tax authorities could not use anti-avoidance rules to “judicially amend or renegotiate a treaty.”
The dissenting justices took a sharply different view, writing that “the federal government did not deliberately set out to create the conditions for unlimited tax avoidance by means of schemes” and that “the court should not legitimize such blatantly abusive tax avoidance based on the view that Canada should have negotiated different treaty terms.”
Whether the Hui companies’ arrangements fall on the Alta Energy side of that line is now a question for the courts. The new application is at least the third Federal Court filing this year in the dispute, and no ruling on the collection fight has been reported.
