A P.E.I. business owner who received money from the Provincial Nominee Program has been forced to pay $15,000 in back taxes after the Canada Revenue Agency ruled the money he received was a service, not an investment.
Ron Frid, who owns York Greenhouses and Garden Centre, paid the $15,000 tax bill out of pocket Friday after the PNP money he received in 2008 for his businesses was audited by CRA.
Frid said he was informed about the now infamous Provincial Nominee Program by his accountant, Arsenault Best Cameron Ellis, in March of 2008 when he received a letter saying his company ‘qualified’ for investment. Initially he was not interested, and threw the letter in the trash. But a week later, Irwin Ellis called him and encouraged him to apply.
After fees to the intermediary Island Business Initiatives Inc. as well as fees for his accountant, lawyer, for insurance and the agent who recruited his immigrant investor, Frid received $39,000 for one PNP investment, known as a unit. He put it toward capital expenditures in his business, as per the stipulations of the program.
Then two weeks ago, the CRA audited his financial involvement in the PNP in 2008. They presented him with their recent ruling, which states they now view the transaction as a ‘service’ rather than an investment into his business. As such, it is subject to different tax law and his past tax payments had to be recalculated. The agency then sent him a bill of almost $15,000,
the taxable amount on the $75,000 it ruled should be allocated as ‘services’ revenue for each unit. Frid’s bill also included five per cent annual interest accrued since 2008.
When he got the bill, Frid called his accountant. He says he was told all PNP files handled by intermediary Ken Clark’s firm Island Business Initiatives Inc. have been red-flagged and are being audited.
In its ruling, the CRA says the money given to P.E.I. companies by immigrant investors should be considered revenue from a service rendered and not an investment because the only benefit the immigrant receives from the transaction is a Canadian Visa.
“Given that the immigrant investor enters into the agreement for the purchase of the preferred shares with no expectations of a monetary return, another benefit must exist to make the program attractive. This benefit is the prospect of Canadian immigration papers,” the CRA ruling states.
“The immigrant enters into the P.E.I. PNP process as a means of immigrating to Canada and for anyone without this intention there would be no logical reason to make an investment such as this.”
Frid said he was never informed this could happen and is upset businesses are now being forced to bear the cost of this reassessment of the funds by the taxman.
“I got pretty hot under the collar because my accountant doesn’t know who’s at fault, my private lawyer doesn’t know who’s at fault, and (Innovation Minister) Al Roach said he doesn’t know anything about it,” Frid said.
“I would say it’s provincial government responsibility because they licensed the intermediary… why did they not oversee what was going on?”
Roach said in a recent interview he knows nothing of this situation and that it’s a matter his department has no intention of getting involved in.
“If Canada Revenue Agency has any issues with companies, that would be between Canada Revenue Agency and the company itself,” Roach said.
“The companies that received PNP monies had lawyers and accountants that they worked with in the process so I would leave that in the hands of the CRA, the companies, their lawyers and their accountants.”
The CBC is reporting that so far only those companies involving Ken Clark have been assessed the extra $15,000 per PNP unit in taxes. That involves 123 companies that received a total of 232 units.
Frid says the whole experience has soured his view of P.E.I.
“Let me put it this way, my relationship with P.E.I. has gone bad and I’m looking to get a divorce,” he said.
The Guardian requested interviews with both Ellis and Clark, but received no response.
