Revenue Canada wants to tax former Winnipeg CAO and his company on bribe money, court documents reveal

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 builtthe 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 becausethe company received a $200,000 "secret commission," which is considered incomethat it did not declare, according to anotice 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 saidin a reply toa 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 Constructiona company controlled by Armik Babakhanians, whose main construction business isCaspian Projects Inc.

That happened in2011,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 sayBabakhanians, through Mountain Construction, paid FSS a $200,000 cheque marked "consulting fee" in July 2011.Sheeglgave 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 proceedsfrom 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, alleginga 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 foundSheegl 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$127,200sent 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 givento 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 Agencyalso 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'snotice of appeal."Therefore, the payment is not taxable in the hands of the appellant."

The attorney general of Canadasaid 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 estateand was associated with eight Arizona-based corporations in 2011, and has an understanding of tax matters, says the attorney general'sreply 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 companyfor $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 spokespersonEtienne Biramsaid "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" andtaxpayers.

The attorney general of Canada wouldn't comment on the case.

Sheegl's lawyers also declined a request for comment.

Revenue Canada wants to tax former Winnipeg CAO and his company on bribe money, court documents reveal

2 years ago

Duration 1:03

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.