Canadian expatriate James Grenon has been involved in tax disputes for more than 20 years and believes Canada's tax authorities have been out to get him personally. Graphic / Paul Slater
Canadian expatriate James Grenon has been involved in tax disputes for more than 20 years and believes Canada's tax authorities have been out to get him personally. Graphic / Paul Slater
Jim Grenon, a Canadian expatriate, is involved in long-running Canadian tax disputes, with courts finding three companies he controlled engaged in “abusive” tax avoidance.
Grenon, who is leading a bid to overthrow the board of Herald-owner NZME, says abusive is a “technical” tax term.
Grenon’s lawyers are seeking to appeal the case to Canada’s Supreme Court, arguing authorities have not interpreted the law correctly and took too long to decide tax was owed.
The businessman vying to overthrow the board of New Zealand’s largest media company is involved in long-running Canadian tax disputes, with a court finding companies controlled by him engaged in “abusive” tax avoidance on more than C$110 million ($134m).
Wealthy Canadian expatriate Jim Grenon now owns 9.97% of NZMEshares and is leading a group of directors seeking board seats in a bid to change the media company’s direction.
In Canada, his tax disputes have stretched over more than two decades.
They’ve included a bid to have child support legal costs written off as tax deductible.
He also hopes to take action against tax authorities he believes acted unlawfully and out of “malice” against him, telling the Herald he’s attempting to improve tax law through his cases.
The most recent ruling in November found that – during a 2005-2006 investment fund reorganisation – three Grenon-controlled companies engaged in abusive tax avoidance against the spirit of Canada’s tax laws.
“There were tax benefits, the series of transactions included several avoidance transactions, and the tax avoidance was abusive,” Madam Justice Siobhan Monaghan wrote in the Canadian Federal Court of Appeal judgment.
Lawyers representing Grenon companies are now trying to appeal to Canada’s Supreme Court.
They say the authorities took too long to decide tax was owing, that they followed the “letter of the law” and that the transactions are outside the scope of Canada’s general anti-avoidance rule.
The Canada Revenue Agency’s website says the anti-avoidance rule’s “purpose is to deny tax benefits to any taxpayer that, although complying with a literal reading of the provisions of the tax rules, are not in compliance with the object, spirit or purpose of the legislation”.
Jim Grenon is leading a group of people looking to take over the Herald-owner's board and dramatically reshape the nation's largest media company.
‘Abused’ the spirit of the rules: The Canadian Federal Court of Appeal decision
Monaghan’s November judgment said that in late 2005, Grenon proposed reorganising a public mutual trust fund.
Among transactions that followed, three Grenon-controlled corporations accrued C$113m in tax-free gains.
The companies recorded “capital gains and off-setting capital losses in more or less equal amounts, as a result of transactions that occurred within minutes of each other”, an earlier Tax Court decision said.
“As a result, the parent corporations could pay C$110m of non-taxable capital dividends to Grenon,” Monaghan said.
Tax authorities believed the tax-free gains were “artificially manufactured” and decided tax was owed on them.
The companies disagreed and appealed to the courts.
Government lawyers highlighted seven transactions they argued were not needed to achieve the original business goal of reorganising the mutual fund.
Monaghan agreed, saying they were designed for tax avoidance.
“I agree that each of these ‘transactions [was] undertaken or arranged primarily to provide tax benefits to [the appellants] and Grenon’,” she said.
She pointed to a past Supreme Court case that found the capital gain system is “aimed at taxing increases in ‘economic power’” not just “arithmetic” or paper differences.
She said the general anti-avoidance rule did apply because some of the transactions “frustrated the object, spirit and purpose of the capital gain and capital loss provisions of the Income Tax Act”.
However, while Monaghan found there had been abusive tax avoidance, she did uphold a number of the appeals brought by the companies.
That included her finding that a lower court made multiple errors when describing the transactions as shams.
‘Never had a reasonable case’: Grenon’s rebuttal
Grenon told the Herald it’s his position tax authorities “never had a reasonable case, should not have proceeded and only did so because they can”.
He said the Appeal Court judge was scathing on many of the earlier court’s decisions, saying its judge “was wrong on just about everything”.
“I haven’t seen another case with this kind of criticism,” he said.
Lawyers representing the companies maintain the entities “complied with the letter of the Income Tax Act” and that when this is accepted, they received no tax benefit and did not owe the tax demanded by the Canadian Government.
They argued Canada’s Minister of National Revenue “does not have the authority to second-guess” legal business decisions or “advance other alternatives that are more palatable to him”.
In their Supreme Court filing this month, they argued the general anti-avoidance rule cannot be used to rewrite “facts”.
They have also argued the taxes are “invalid” because it took eight years for authorities to decide tax was owed as a result of the transactions.
James Grenon moved to Auckland in 2012 from Calgary in Canada's Alberta, a province rich in oil and gas resources. Photo / 123rf
During the long-running battle, Grenon’s legal team also had some wins.
That included having the courts set aside a Canadian Government jeopardy order when Grenon sought to move some of his wealth to New Zealand.
“At one point, the tax agency tried but failed to stop Grenon from shifting the C$55m to NZ on the basis that an alleged C$283m of tax debt might not be repaid should the agency win its case,” BusinessDesk reported in 2023.
Grenon told the Herald the tax agency hiked his tax bill “literally overnight and without warning and then claimed I was trying to run from something I knew nothing about”.
“They lost in every way they could on that but I am waiting for more to be finished before my claim against them proceeds,” he said.
Tax avoidance and the Canada Revenue Agency response
In referring to abusive tax avoidance, Grenon told the Herald it was a “technical” term.
“Tax avoidance is allowed, it is only ‘abusive’ tax avoidance that allows the court to use GAAR [general anti-avoidance rule],” he said.
“It is nothing like as damning a label as you may think.”
The Canada Revenue Agency’s (CRA) website said that when “tax planning reduces taxes in a way that is inconsistent with the overall spirit of the law, the arrangements are referred to as tax avoidance”.
“The CRA’s interpretation of the term ‘tax avoidance’ includes all unacceptable and abusive tax planning,” its website said.
The agency told the Herald it does not comment on specific court cases because of the confidentiality of taxpayer information.
However, it did say the courts act to review and “clarify the law or resolve disputes between the Canada Revenue Agency and taxpayers”.
‘Malice’ and ‘misfeasance’: Grenon’s claims against Canada’s tax agency
Grenon completed a law degree at the University of Manitoba in 1980, a 2021 Tax Court of Canada ruling by Justice Guy Smith noted.
He “practiced law in Alberta for a short period of time before pursuing an interest in corporate finance and investments”, the ruling said.
He was “also involved in the early stages of the Alberta oil and gas industry and as a result of these activities, gained significant personal wealth”.
The judge said his “knowledge of income tax law surpassed that of ordinary taxpayers”.
Grenon “frequently consulted” the Income Tax Act, describing his interest in income tax law as one of his hobbies, Smith said.
Canadian expatriate James Grenon has been involved in tax disputes for more than 20-years and believes Canada's tax authorities have been out to get him personally. Graphic / Paul Slater
Grenon’s complaints are laid out in a December 2023 judgment that indicated he wished to bring a Misfeasance in Public Office Claim against the Canada Revenue Agency and some of its employees.
“Misfeasance in public office requires proof of a deliberate and unlawful act by an individual engaged in public office that is intended to injure,” an earlier Court of Appeal of Alberta ruling said.
Grenon claimed the tax agency and its workers audited and acted against him out of “a desire to justify their thousands of work hours” as well as “malice” and a “capricious” pursuit of Grenon personally.
He claimed there was a strategy from the “highest levels within the CRA” to harm him and “use the power of the state” to attempt to pressure him “into negotiating a settlement on unreasonable terms”.
He said the “far-reaching audit” began in 2007 or earlier.
Yet it was not until an April 2012 letter from the CRA that he got the first notice the agency believed any tax was owing, he said.
A series of proposals and tax reassessments would follow.
“The reassessments took Grenon’s purported tax liability under the First and Second Proposal Letters from a high of $3.8 million only days before, to $205 million, without any notice to Grenon or hint that this might occur,” his claim said.
He also complained about the Canadian Government’s jeopardy order seeking to prevent him from moving some of his wealth to New Zealand.
Grenon and his partner were granted New Zealand residency in February 2012 and his claim said the country was “not a place one would go to avoid taxes” given it had signed a reciprocal tax treaty with Canada.
Child support case
Grenon also contested another case in which he was not permitted to deduct more than $165,000 of child support-related legal fees from his 1999 and 2000 income tax returns.
Under Canadian law, those receiving child support payments can deduct legal expenses in related court cases but those paying cannot.
With most payors being men, Grenon argued a tax regime making this distinction violated the Canadian Charter of Rights and Freedoms on the “basis of sex”.
His lawyers argued in a Supreme Court filing on the matter: “It is part of Mr Grenon’s complaints that an opponent in private family law proceedings is given an unfair advantage through tax deductions”.
Grenon said he pushed the case as “an attempt to improve the judge-made tax law”.
“It was never about me trying to get away with some deductions that weren’t allowed. In fact, the taxes had been paid in a timely manner.”
A 2014 Tax Court case dismissed his appeals, but did express “some concerns” the law could give rise to “serious inequities” and asked Parliament to consider the situation.
A 2016 Federal Court of Appeal decision also dismissed his appeals.
Justice Donald Rennie in his judgment said the Income Tax Act was not discriminatory because it treated men and women the same when in the same situation.
“Women payees are affected in the same manner and to the same extent as male payees,” he said.
He said the fact most men are payors is linked to social circumstances, income levels and family law agreements or court orders, rather than tax law.
“Men are denied the deduction not because they are men, but because they are not, in the majority of cases, the custodial parent,” he said.
Grenon was denied permission to appeal the case to the Supreme Court.
Grenon told the Herald he was not finished fighting his cases, with the legal battles likely to continue on through his bid to become chair of NZME’s board either before or at the company’s April 29 annual shareholders’ meeting.
