Feds push back in John Risley's multimillion-dollar tax battle

The federal government has filed in court a 100-page reply to John Risley's latest tax appeal, arguing in detail why the Canada Revenue Agency believes the wealthy and prominent Nova Scotia businessman underreported his income by millions of dollars a year.

The document is the latest salvo in a long-running Tax Court battle instigated by Risley, who has filed three separate appeals over roughly $90 million in benefits the CRA claims he received from his companies over a 20-year period but didn't declare on his taxes.

The latest appeal, for the years 2012 to 2019, was filed this summer. Risley, who is best known as the co-founder of Clearwater Seafoods, has said he reported what he believed were the correct amounts on his taxes and has denied making misrepresentations or false statements.

But in a reply filed last month, the federal government claims the value of benefits that flowed to Risley from his companies, including his Halifax mansion, sprawling Chester, N.S., property, Montana ski lodge and stays on luxury yachts, was far greater than what was shown on his taxes.

Under the Income Tax Act, the value of "benefits" conferred by a corporation to a shareholder — a company-paid vacation, for instance — are considered part of the person's income and should be taxed.

The CRA has claimed that Risley's companies funded his living expenses, hobbies and "personal endeavours." The companies own several homes where he lives, but also other property, including an exclusive Labrador fishing lodge where Risley stayed for a number of nights and luxury yachts that were chartered to third parties but which Risley sometimes used.

The government's recent filing says Risley reported to the CRA between $1.5 million and $3.2 million a year in total income from 2012 to 2019, much of it in the form of benefits from his companies. 

But the CRA claims those figures vastly underrepresent the value of the benefits Risley actually received. In some years, the agency calculated his income from benefits was $6 million or $7 million more than what his tax filings showed.

It's clear from the court records that Risley and the CRA have been at loggerheads for several decades. He's faced several reassessments, many of which he is currently appealing. 

Risley "has made misrepresentations in his tax returns regarding taxable benefits since 1985, which has resulted in material reassessments over the years," Department of Justice lawyer Cecil Woon wrote in a Dec. 20 court filing.

Risley did not respond to an interview request. Last fall, he told CBC News he doesn't take issue with paying tax on shareholder benefits, but he doesn't believe the CRA is correctly calculating those benefits and they are too high.

His lawyers have said in court filings that he relied on accountants and tax specialists to advise him and prepare his returns.

The largest dispute surrounds a property in Chester, on Nova Scotia's South Shore, where a Risley company built a mansion in 1998 using $28 million in interest-free loans from Clearwater Fine Foods Inc., a holding and investment firm Risley chaired.

Risley's appeals have claimed the house was only "partly used personally," and that it hosted corporate business development functions, was used to entertain dignitaries and forms part of a series of properties that are "long-term investments." The CRA has countered it was "exclusively used personally" by Risley.

Two of the appeals, related to the years 2000 to 2011, were filed in 2018 but have still not been adjudicated. In June, Risley's lawyer wrote to the Tax Court that it would be "premature" to set down dates for a hearing, as her client wanted to consolidate his new appeal with the old ones. 

This summer, Woon urged a judge to set dates for a hearing, noting some of the tax years under appeal date back more than two decades.

He worried there would be "further erosion of evidence" if Risley's lawyers were allowed to join this summer's appeal with those from 2018, because it would add several years of pretrial litigation.

Last month, a Tax Court judge asked both sides to find dates before June 2026.