Superior Plus challenges Ottawa over huge tax bill

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Superior Plus Corp. has asked Canada's tax court to force the federal government to produce internal emails the Calgary company believes will bolster its claim that it doesn't owe $83-million in back taxes.

The company intends to challenge a reassessment by the Canada Revenue Agency related to Superior's conversion to a corporation from an income trust in 2008, chief financial officer Wayne Bingham said in an interview.

"We think we have an extremely strong case," Mr. Bingham said.

Superior, which distributes propane and construction products and makes industrial chemicals, is one of several corporations targeted by Ottawa for tax avoidance stemming from their conversions from income trusts over the past decade. While many have settled – including Winnipeg's Exchange Income Corp. last week – Superior is fighting on. Last week it told shareholders it had filed a formal objection to reassessment notices it received in November, and expects its case to go before the Tax Court of Canada within two years.

"We're not prepared to settle," Mr. Bingham said. "The board and senior management… feel the facts, when they do get before the courts, will speak for themselves."

Al Meghji, a lawyer with Osler, Hoskin & Harcourt representing Superior, declined to comment.

The dispute centres on a 2008 plan of arrangement in which Superior transformed from an income trust into a corporation. It was a complex deal involving a transaction with fuel cell technology developer Ballard Power Systems Inc. Superior's old operating company, held by the Superior Plus Income Fund, was combined with tax losses from Ballard and rolled into its current structure. Superior got $1-billion in tax losses from Ballard it could use to offset future taxes from its profitable Canadian operations. Ballard got $46-million.

Under Canadian tax law, companies can't use tax losses acquired when they purchase assets in unrelated businesses, which would have the effect of reducing taxes payable. Income trusts didn't face the same restrictions because they weren't legally corporations, but after they converted to corporations, the feds went after an estimated 10 to 20 of them, including Superior, maintaining they triggered anti-tax avoidance rules anyway. The government then changed the law to ensure they would be subject to the same rules going forward.

Mr. Bingham said Superior's management and board did "extensive due diligence" in 2008 to ensure its corporate transformation"was squarely within the white lines of the Income Tax Act."

Superior believes internal government emails support its position. But when it filed Access to Information requests to obtain those emails, it received heavily redacted documents from the government, said Mr. Bingham. "As a matter of fairness we're asking for all of their internal emails on consideration of [the transaction]," he said. The two parties appeared before a tax court judge in Calgary Thursday to argue the point and expect a decision in a couple of months, the company said on a conference call Friday. If Superior gets the emails, "We think we'll bolster our case even further," Mr. Bingham said.

A CRA spokesman declined to comment, citing the Income Tax Act's confidentiality provision and the fact the case is before the courts.

Superior said if the reassessment stands, it would owe $83-million for the years 2009 to 2015. It has provided half that amount to the government, which it must do pending the outcome of the case. National Bank Financial analyst Patrick Kenny said if Superior loses, it would reduce after-tax cash flow by 15 cents per share. Superior forecasts adjusted operating cash flow of $1.80 to $2.10 per share in 2015.