The shareholders of a company that once owned Sun Peaks Resort are suing their accountant for allegedly giving them bad tax advice, which resulted in a loss for the company.
In November 2007, Pinnacle Lodge, which operated Sun Peaks Resort near Kamloops, sold the ski resort to Aviawest. Pinnacle is made up of trustees of the Hanlin Family Trust, W 650 Holdings and MTR Developments Ltd.
The sale to Aviawest included an interest-bearing promissory note.
The shareholders of Pinnacle had made loans to Pinnacle when the company owned Sun Peaks Resort. Pinnacle had not previously paid interest on the shareholder loans.
Between 2007 and 2010, Aviawest paid interest on the promissory note. Pinnacle included these payments as income. From 2007 to 2010, the income was offset for income tax purposes by Pinnacle's income loss carryforward. But by 2011, the limit for the carryforward had been reached and the payments from Aviawest would have resulted in Pinnacle having to pay more income tax.
The shareholders of Pinnacle wanted to minimize the amount of income tax Pinnacle would have to pay.
According to the lawsuit, Kamloops-based Tenisci Piva Chartered Accountants, the defendant, recommended a tax plan where Pinnacle would pay the shareholders interest on the loans the shareholders had made to the company from 2002 to 2011. That interest was supposed to offset the income earned from the Aviawest payments.
In 2011, Pinnacle claimed $292,320 as an interest expense. But after conducting an audit, Canada Revenue Agency disallowed the interest expense on the basis that the law only permits a taxpayer to claim an interest expense if there is a legal obligation to pay interest.
However, the interest payments the shareholders had received from Pinnacle were taxable, the claim alleges.
"The Tax Plan resulted in a loss to Pinnacle and its shareholders as it resulted in the same income being taxed at both the corporate and shareholder level," the lawsuit states.
The Pinnacle shareholders are seeking damages comparable to the amount of tax they had to pay on the interest payments.
None of the allegations has been proven in court.
The time to file a statement of defence has not yet expired.
