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HomeBusinessExclusive: The $6M deal that saved BC Liberals from testifying in court turns into tax trouble for Basi and Virk

Exclusive: The $6M deal that saved BC Liberals from testifying in court turns into tax trouble for Basi and Virk

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Bob Mackin

The only two BC Liberals to suffer consequences from the tainted BC Rail privatization are appealing a massive tax bill almost seven years after they served their sentence, theBreaker.news has exclusively learned.

Under the BC Liberals, the province assumed $6.2 million in legal bills for Dave Basi and Bob Virk, but a federal ruling has classified those payments as a “taxable benefit” that should have been reported as income.

Bob Virk (left) and Dave Basi (A-Channel)

The former aides to Finance Minister Gary Collins and Transportation Minister Judith Reid, respectively, pleaded guilty to breach of trust in October 2010 after the province controversially agreed to pay for their defence lawyers. The B.C. Supreme Court trial, stemming from a 2003 investigation, ground to a halt on the eve of Collins’s testimony.

Basi and Virk’s Tax Court appeal is scheduled for June 24 at the Delta Ocean Pointe Resort, across Victoria’s Inner Harbour from the Legislature where police hauled away banker’s boxes full of evidence on Dec. 28, 2003.

The province agreed in November 2005 to pay for their defence costs in the form of a loan that, if convicted, they would repay.

Basi and Virk both signed an Oct. 14, 2010 agreement with Assistant Deputy Minister Richard Fyfe that gave them a “complete release from liability,” after Deputy Minister of Finance Graham Whitmarsh and Deputy Attorney General David Loukidelis put together the $6 million deal that triggered the plea bargain.

The sudden end of the trial meant Collins, Premier Gordon Campbell, ex-Deputy Premier Christy Clark and lobbyist Patrick Kinsella never testified under oath about what they knew and when they knew it. The sudden end of the trial also sparked calls for a public inquiry. 

Basi and Virk were sentenced to two years less a day of house arrest and probation after admitting to receiving a trip to a Denver Broncos NFL game from lobbyists for one of the bidders, OmniTrax. Basi also admitted to receiving $26,000 from OmniTrax lobbyist Erik Bornmann.

Tax Court filings called the provincial government’s payment of $3,236,933 to Virk’s lawyer Kevin McCullough and $2,945,672 for Basi’s lawyer Michael Bolton taxable benefits and unreported income.

In May 2012, the BC Liberal government issued T4A slips for Basi and Virk’s 2010 tax year to the Canada Revenue Agency.

But Basi and Virk say they did not see the T4A slips until January 2014 from CRA. CRA reassessed their 2010 returns in March 2014 and deemed the amounts on their T4A slips as unreported income.

Federal lawyers claim Basi and Virk received a benefit in the 2010 taxation year by virtue of their employment with the B.C. government. But they had been fired nearly seven years earlier.

Basi filed a notice of objection in June 2014, denying receipt of any benefit. But the CRA appeals division confirmed the reassessment in May 2015.

“There is no evidence that the province by this agreement in 2010 intended to confer a benefit nor that [Basi] intended to receive a benefit in relation to office or employment,” said Basi’s July 2016 amended notice of appeal by his lawyer, David Mulroney.

“The province was funding a very expensive trial and wanted out from under that cost, which was out of all proportion to any potential recovery and needed an acceptable outcome. Employment had long since ended and was not then relevant to the decision.”

The provincial government secured Basi and Virk’s plea bargain by releasing any amounts owing. Basi’s filing said that there was no incentive to him, because he had the possibility of being found not guilty and would face certain bankruptcy if he had to pay the money back. The Financial Administration Act says that a debt or obligation to the government of $100,000 or more can only be forgiven by cabinet order. No such order was made in 2010. That, Basi’s Tax Court filings say, also means there was no taxable benefit.

“The Crown’s primary purpose was to save money, and obtain certainty of outcome, not to confer a benefit.”

BC Rail train in 1995 (Trainspotted.com)

Between 1996 and 2011, more than 100 people were granted special indemnities by the B.C. government, amounting to more than $11 million. Of that, $6.4 million went to the Basi and Virk defence. There were six other special indemnities granted to public servants and politicians involved in the trial. An analysis by the Office of the Auditor General found the trial cost $18 million.

In 2001, the Campbell-led BC Liberals ran on a platform that promised not to sell BC Rail. Campbell changed his mind after the landslide victory over the NDP and he put the railway on the block. The sale was fraught with controversy. Bidders CP and Burlington Northern Santa Fe both dropped out, leaving OmniTrax and CN.

CN, chaired by BC Liberal bagman David McLean, eventually paid $1 billion for BC Rail in November 2003.

In its 2013 election platform, the Adrian Dix-led NDP promised to hold a public inquiry to get to the bottom of the BC Rail scandal. Premier Christy Clark, who would have been a target of such an inquiry, led the BC Liberals to a surprise election win.

The John Horgan-led NDP did not repeat the Dix promise in the party’s 2017 platform. The Green-supported NDP minority government finally green-lit a public inquiry in May, about money laundering.

Neither Basi nor Virk are commenting on the Tax Court case.

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