Members of the billionaire family that owns the Vancouver Canucks are facing a massive tax bill related to a complex scheme developed to offset taxes on the sale of more than $140 million worth of assets needed to raise money to buy the hockey team.
The Aquilini Group bought the Canucks more than a decade ago.
But in a tax court ruling released Thursday, Judge Frank Pizzitelli rejected a plan that would have seen the three brothers who control the organization pay almost no capital gains tax related to the giant West Edmonton apartment complex they sold in order to buy the team.
The 86-page ruling details a plan that saw a web of Aquilini partnerships offset gains from the sale of West Edmonton Village through losses carried on the books of an insolvent company they bought around the same time.
‘One of Canada’s most iconic business families’
The Aquilinis say they plan to appeal the decision.
Pizzitelli said the members of the Aquilini family should have paid taxes on more than $40 million worth of income related to the sale of West Edmonton Village.
But instead they claimed their gains had been wiped out by the debts of their latest company.
The ruling follows an appeal of a 2007 tax assessment from the three Aquilinis, the estate of their late mother Elisa and an investment trust company.
According to the judgment, the brothers each initially declared taxable income of $50,572. Pizzitelli’s ruling puts the amount for each closer to $11.5 million.
The decision delves deep into the history of an empire Pizzitelli describes as “one of Canada’s most iconic business families.”
In order to reach a determination, the judge had to consider what a “reasonable business person” might have done in the shoes of Franceso, Paolo and Roberto Aquilini.
A purchase mired in conflict
In 2004, the Aquilini group bought 50 per cent of a business that comprised the Vancouver Canucks and the arena where they played.
The purchase was mired in conflict as two other Vancouver businessmen, Tom Gaglardi and Ryan Beedie, accused Francesco Aquilini of going behind their backs when he bought the team from American billionaire John McCaw for a reported $250 million.
But the B.C. Supreme Court ultimately ruled in Aquilini’s favour.
According to Pizzitelli’s ruling, the Aquilinis decided to buy the remaining half of the team in 2006, but required a substantial amount of capital, leading to the sale of West Edmonton Village for $143.5 million.
The sale of a second property in Fernie meant they were looking at taxable gains of about $48 million.
Roberto Aquilini testified that they sought the advice of their tax lawyer and other advisors to lower the tax burden.
They came up with a plan to buy an insolvent company — JPY Holdings — with $121.2 million worth of capital losses on its books. The losses would then be used to offset the gains from the West Edmonton Village sale.
‘While not decisive, it is telling’
In untangling the multitude of entities that make up the Aquilini Group, the judge outlines concerns that arose from patriarch Luigi Aquilini’s 1989 cancer diagnosis and claims against family assets by one of his son’s ex-wives.
The Aquilinis argued that “those considerations are not personal but business considerations as well,” writes Pizzitelli.
But the judge said that factors related to relationships between family members or estate planning couldn’t play a role in the tax assessment.
He also questioned the allocation of losses from the insolvent company to the three brothers “who performed all the work” but did not claim the income from it.
“No reasonable businessperson would accept such an outcome,” he wrote. They would expect to ”share in both the upside and downside of income and loss,” he said.
He cited Roberto’s testimony “that he didn’t care whether money came into his left pocket or right pocket as he assumed the allocation flowing to his family trust under the partnership agreement was really his own.”
The judge concluded by noting that “while not decisive, it is telling” that the Aquilini’s tax advisors gave no evidence as to what the scheme was for if it was not tax driven.
The Aquilinis say they plan to take the case to the Federal Court of Appeal.
“This case involved a dispute as to how income must be shared under the terms of a partnership agreement,” Aquilini Group spokesman Jim Chu said in an email.
“We do not agree with the result.”