Space travel should be taxed as shareholder benefit, not as business trip: Federal Court of Appeal

In Laliberté v. Canada, 2020 FCA 97, the Federal Court of Appeal found an excursion into outer space was primarily a shareholder benefit, not as a business trip.

Guy Laliberté, founder of a group of corporations doing business under the trademark “Cirque du Soleil,” embarked on a 12-day space trip in 2009 to fulfill his life-long dream to be a space tourist. While there, he also held a broadcast event, took photographs for a book and filmed a documentary all aiming to benefit the One Drop Foundation, a clean water charity he founded.

The Family Holdco, a corporation in the Cirque du Soleil group, paid the trip costs of over $41 million to Space Adventures, Ltd., for costs under an orbital space flight purchase agreement plus miscellaneous costs. Laliberté included a shareholder benefit of $4 million in his tax return for that year, but the Minister of National Revenue assessed an additional amount of over $37.8 million.

Upon appeal, the Tax Court of Canada mainly disagreed with Laliberté’s contentions that the trip should be considered a promotional activity for Cirque du Soleil and One Drop Foundation and should not be considered an activity giving rise to a shareholder benefit.

The tax court allocated 10 per cent of the trip costs as business-related. With the value of the shareholder benefit set at 90 per cent of the costs of the trip, or around $37.6 million, the tax court referred the matter back to the Minister of National Revenue for reassessment.

Justice Patrick Boyle, writing for the tax court, compared Laliberté’s space trip to a business owner-manager’s cross-country trip, in which the owner-manager wants to embark on the trip for personal reasons but decides to make stops along the way to visit clients and suppliers.

As Boyle wrote, “there is a difference between a business trip which involves or includes personal enjoyment aspects, and a personal trip with business aspects, even significant ones, tacked on. I have found that this space trip falls into the latter category, and the tax consequences to the business income are considered and determined accordingly.”

Laliberté then appealed, arguing that the tax court had incorrectly interpreted a number of provisions of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.).

Justice Mary Gleason, writing for the Federal Court of Appeal, individually discussed the assailed provisions of the Income Tax Act. Gleason, addressing the issue of whether the transaction had been made for a business or personal purpose, said that the tax court had a more than ample factual basis for deciding that Laliberté had received a shareholder benefit.

The factual findings of the tax court included the following:

• Laliberté would have opted to travel to space even if the broadcast event had been impossible.
• He had already committed to going on the trip without the Cirque du Soleil corporations authorizing the expenditures beforehand.
• The transactions had been structured in such a manner that avoided putting the burden of the economic costs on outside shareholders.

The Federal Court of Appeal therefore dismissed the appeal.