Revenue Canada wants to tax former Winnipeg CAO and his company on bribe money, court documents reveal
Phil Sheegl is appealing the Canada Revenue Agency's tax reassessment
The Canada Revenue Agency wants former Winnipeg chief administrative officer Phil Sheegl and his company FSS Financial Support Services Inc. to pay taxes on bribe money the company received from the contractor that built the Winnipeg Police Service headquarters, court documents reveal.
The revenue agency said it was reassessing Sheegl's and FSS's taxes for 2011, according to a court document.
The CRA says that's because the company received a $200,000 "secret commission," which is considered income that it did not declare, according to a notice of appeal filed by Sheegl on April 19, 2022, in Tax Court of Canada.
"In failing to report all its income for the 2011 taxation year, the appellant made misrepresentations attributable to neglect, carelessness or wilful default," the attorney general of Canada said in a reply to a separate notice of appeal by FSS, which was also filed on April 19.
The documents say the money Financial Support Services received came from Mountain Construction — a company controlled by Armik Babakhanians, whose main construction business is Caspian Projects Inc.
That happened in 2011, two days after Caspian was awarded a contract to build the Winnipeg Police Service headquarters, the documents say.
The police HQ construction project was later the subject of a five-year RCMP investigation that ended in December 2019 with no charges laid.
Documents filed in the Tax Court of Canada say Babakhanians, through Mountain Construction, paid FSS a $200,000 cheque marked "consulting fee" in July 2011. Sheegl gave half to then Winnipeg mayor Sam Katz and wrote "loan" on the cheque.
Sheegl "has no knowledge as to why the payor of the deposit referred to the amount as a 'consulting fee' on the cheque, as the amount was not an income item," said the FSS notice of appeal.
It says the amount was "sale proceeds from the disposition of part of the interest" in a share of a piece of undeveloped land in Tartesso, Ariz.
WATCH | A 2017 CBC report on the Arizona land deal:
FSS said it didn't declare the money as income because the money did not belong to the company.
It said $100,000 was owed to Winnix — an Arizona company owned by Sheegl. The other $100,000 was owed to Duddy Enterprises LLC, an Arizona company owned by Katz, according to FSS.
Sheegl says the $200,000 was sent to FSS because it's a Canadian company.
While FSS maintains the payment was part of a 2011 real estate deal Sheegl and Katz did with Babakhanians, a Manitoba court called it a "bribe" in a ruling delivered earlier this year.
In January 2020, the City of Winnipeg sued Babakhanians, Sheegl and a number of other people and companies involved in the police HQ project, alleging a scheme to defraud taxpayers out of millions of dollars.
That lawsuit is still before the courts. However, Sheegl successfully fought to have his case separated from the group.
In March 2022, a justice with what was then Manitoba Court of Queen's Bench found Sheegl had accepted a bribe and breached his duty as a city officer when he took $327,200 from Babakhanians, which he split with Katz.
The money was given to Sheegl and Katz in two payments — the $200,000 Mountain sent to FSS, and $127,200 sent to a Katz company.
Sheegl was ordered by the Manitoba court in March to pay the city approximately $1.1 million, which included the bribe money and severance pay. He is currently appealing that decision.
Must pay taxes on money given to Katz: CRA
The latest court documents say FSS is a consulting business and had reported $28,069 income in 2011, as well as a loss of $121,978 partnership income.
The attorney general's reply to the FSS appeal says "$200,000 represents a 1,000 per cent increase over what was reported as consulting revenue."
The Canada Revenue Agency also reassessed Sheegl's personal income taxes on March 7, 2019, to include the $100,000 payment to Katz in 2011. The documents say Sheegl's reported income in 2011 was $208,000, but should have included that money.
The CRA says in court filings that Sheegl benefited by giving that money to Katz, who was mayor from 2004 to 2014, because he didn't have to pay taxes on it.
Sheegl's notice of appeal says the $100,000 payment was not made for his own benefit.
"The payment was owed to Mr. Katz/Duddy for the portion of the interest that was sold to Mr. Babakhanians," said Sheegl's notice of appeal. "Therefore, the payment is not taxable in the hands of the appellant."
The attorney general of Canada said by not reporting all his income in the 2011 tax year, Sheegl "made misrepresentations attributable to neglect, carelessness or wilful default" and should pay penalties as a result.
Sheegl has 24 years of experience working in real estate and was associated with eight Arizona-based corporations in 2011, and has an understanding of tax matters, says the attorney general's reply to Sheegl's appeal.
"The appellant knew, or ought to have known, that his income was understated on his income tax return," it says.
'No evidence of negligence': appeal notice
The court filings also say Katz was not part of the Arizona land deal in 2011, because he hadn't purchased an interest in Duddy Enterprises LLC from Phil Sheegl until March 2012, when he purchased the company for $1.
Sheegl "submits there is no evidence of negligence to justify reopening the 2011 taxation year to reassess in respect of the payment," his notice of appeal says.
The Canada Revenue Agency wouldn't comment on the case.
In an email to CBC News, CRA media relations spokesperson Etienne Biram said "the courts provide Canadians with a further independent review of disputed issues, and court decisions serve to clarify the law or resolve disputes between the Canada Revenue Agency" and taxpayers.
The attorney general of Canada wouldn't comment on the case.
Sheegl's lawyers also declined a request for comment.
ABOUT THE AUTHOR
