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Mulroney can't explain tax break on half of Schreiber cash

Former PM tells Oliphant inquiry he played no role in negotiations with revenue authorities

Globe and Mail Update

OTTAWA — Brian Mulroney was required to pay income tax on only half of the $225,000 in cash he accepted from lobbyist Karlheinz Schreiber, thanks to a “pretty good deal” offered to the former prime minister by Canada Revenue Agency, a public inquiry heard Tuesday.

On the last day of Mr. Mulroney's strenuous three-day examination by inquiry lawyer Richard Wolson, the former prime minister said he couldn't explain how his Montreal tax lawyer convinced the agency to tax him on a total of $112,500, even though auditors were well aware that the amount he had received was $225,000.

The February 2000 agreement, which was made about six years after Mr. Mulroney accepted the money from Mr. Schreiber and done under the agency's amnesty or voluntary disclosure program, was negotiated by Wilfrid Lefebvre, a Montreal tax lawyer and former lawyer with the tax division of the federal Justice Department.

When pressed to explain the discrepancy, Mr. Mulroney tried to distance himself from the negotiations. He placed responsibility on Mr. Lefebvre, saying: “He negotiated this with the tax department. It really had nothing to do with me, if I may. I had nothing to do with this whatsoever.”

The former prime minister repeatedly pointed out that when the deal was being finalized, his name had not been disclosed to Canada Revenue Agency, which is common when lawyers make voluntary disclosures on behalf of clients. Often, the taxpayer's identity isn't revealed until the agency has said whether it will accept the offer.

Mr. Mulroney also stressed that, when he eventually came forward, he never claimed any expenses. But the response didn't satisfy the inquiry's lead lawyer.

Mr. Wolson, the Winnipeg defence lawyer tasked with getting to the bottom of the cash that Mr. Mulroney accepted from Mr. Schreiber, didn't relent: “But in the end result, instead of paying taxes on income of $225,000, you paid taxes on income of $112,500. You agree with that, because, well, that's what happened?”

After pointing out the absence of expense deductions again, Mr. Mulroney acknowledged: “I can't quarrel with you, sir. I can't quibble with you. I told you what happened. Income was declared and taxes were paid.”

At that point, Mr. Justice Jeffrey Oliphant stepped in, and pointed to the letter between Mr. Lefebvre and the agency: “It's right there in the letter for all to see … Pretty good deal, you'd agree with that?”

“Well, he's a pretty good lawyer,” Mr. Mulroney replied.

Mr. Lefebvre, who works with Ogilvy Renault, where Mr. Mulroney is a senior partner, did not return a request for comment. A message for a spokesperson for Canada Revenue Agency, left late Tuesday, was also not returned.

The inquiry has been tasked with getting to the bottom of the hundreds of thousands of dollars in cash that Mr. Mulroney accepted from Mr. Schreiber in hotels between 1993 and 1994 after he left office. Mr. Schreiber was paid more than $20-million in secret commissions by European manufacturers for his efforts in trying to land them contracts with the Mulroney government. Both men deny that those commissions had anything to do with the cash payments, but offer different explanations about what Mr. Mulroney was hired to do.

On Tuesday, the revelation that Mr. Mulroney received at least $112,000 tax-free left tax lawyers, none of whom wanted to speak on the record in interviews, scratching their heads.

“There's no question in my mind that the whole thing is fully taxable … and there's no way that you get to reduce that number by anything other than expenses,” one Toronto tax law expert said.

The issue of the voluntary disclosure prompted at least three objections from Mr. Mulroney's legal team Tuesday. Guy Pratte, Mr. Mulroney's lead lawyer, was quick to remind the judge that it isn't the inquiry's role to determine compliance with laws such as the Income Tax Act, but rather to find facts as they relate to Mr. Schreiber and Mr. Mulroney.

The correspondence between Mr. Lefebvre and Canada Revenue Agency was filed with the Oliphant commission last week. The documents, which are written in French, were misinterpreted by The Globe and Mail and other media last week, stating that the former prime minister paid $112,500 in tax on the total of $225,000 – when in fact the letters show that he was only taxed on $112,500, even though he made the agency aware that he received $225,000.

The letters from Mr. Lefebvre to agency official Jean-Louis Lussier also show that the lawyer arranged it so that Mr. Schreiber wouldn't be revealed as the source of the income; “The name of the person who paid the amounts will not need to be disclosed as a result of this disclosure,” Mr. Lefebvre's letter states.

Two Canada Revenue Agency officials have been subpoenaed to testify at the inquiry. Director-General Wayne Adams, as well as Christiane Sauvé are scheduled to appear Wednesday. However, a lawyer for Mr. Schreiber, Richard Auger, is starting off the day with questions for Mr. Mulroney, whose testimony will likely be complete as of Wednesday morning.

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