By Vaughn Palmer  
View from the Ledge - July 8, 2010

The public accounts for 2009-10, released Thursday, supplied the latest figure for the ever-growing indemnity  associated with the sale of government-owned BC Rail to CN.
As of March 31 of this year,, the province was on the hook for $600 million.
This represents the provincial side of one of the more controversial aspects of the $1 billion sale. Along with acquiring the provincially-owned railway and its rolling stock, CN paid a premium to acquire so-called tax room -- the option to use the accumulated financial position of BC Rail to reduce its own corporate taxes payable.
But fearing that the federal tax department might disallow all or part of the claim, it sought a provincial indemnity for the full amount. The province, accordingly, provided same.
CN long ago made use of the full value of the tax room it acquired in the deal. As time passes, it becomes increasingly unlikely that the federal tax department would revisit the transaction and reassess CN's claim.
 However out of prudence the public accounts continue to record the full amount for which (however unlikely)  the province might be on the hook, meaning the original number and any related costs boosted by nine per cent a year in order to preserve the "maximum present value."
"These indemnities remain in effect until 90 days after the last date on which a tax assessment can be issued in respect of the income tax attributes," says the fine print in the public accounts.
The last possible date on which  that can happen is post-2013. Until then, the indemnity will be booked every year. At the current rate of inflation, it is expected to reach  $900 million, meaning close in dollar terms to the originally published value of the transaction, albeit with no  allowance for the difference in net present values.
At which point, the province believes the amount will be struck off the books without the treasury having to pay anything to CN.
Or as it says in the public accounts "Management believes it is unlikely that the province will ultimately be held liable for any amounts under the commercial and tax indemnities."
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BC Mary comment:  somewhere long ago I learned that a contract by its very meaning, must convey a benefit to both sides of the contracting agreement.


No lawyer will approve a contract agreement if it essentially gives all the benefit to one party, and nothing to the other party. It's patently dishonest (that is, it's daylight robbery) if a contract says "I'll take everything you have and leave you with no grounds for recourse." Even in BC, Mr Palmer, they gotta do better than that.


As I understand Vaughn Palmer, over-simplified, he's saying that this is precisely what will happen: CN skates off with BC Rail and its annual profits, as well as the cash refund of the so-called "purchase price" ... and the taxpayers will pay the bill.


Surely to heaven, we're not going to let that happen?
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Anonymous comment cross-posted ...

That's not quite how I read it. I read it as, the BC Government gave CN a tax credit without full agreement from the federal government, but promised to pay the federal government bill if the feds disagreed and asked for payment.

Thus, the 900 million, if the federal government decides to charge it, will pass from the provincial government to the feds instead of from CN to the feds. CN won't get the money (except that in principle they've already received it as a tax break).

So far, the feds haven't asked for it and probably won't, but just in case they do the provincial government is keeping track of what they might owe.

What's alarming about this is that it shows that BC residents are no longer getting much of anything out of BC Rail, including the corporate tax payments we should be getting. CN won't get any cash refund, but they have already received a tax rebate refund for roughly the purchase price of the railway.
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RossK comment cross-posted:

As quoted by Mr. Palmer:

"Management believes it is unlikely that the province will ultimately be held liable for any amounts under the commercial and tax indemnities."

Please understand the following, as we have previously noted regarding the faux/not faux 'booking' of the growing indemnity in previous years....

Specifically, this 'Management' that is saying this thing about it all going 'poof' when it approaches 10 figures was originally the same bunch of very, very fine fellows (and Gordon Campbell appointees) who:

a) Took the finest of the fine advice from an even finer fellow named Patrick Kinsella during the 'transition' from 2002 to 2005, and;

b) Collectively collected literally millions of dollars to essentially run little more than 40km of Roberts Bank Spurline after the Quid Pro Quotian Deal went sour in the spring of 2004 up until this spring when the fourth estate finally made a fuss about their egregious renumeration.

OK?

(and we are so glad that Mr. Palmer is, indeed, at least occasionally, still trying to keep up - sheesh)
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