Feds push back in John Risley’s multimillion-dollar tax battle

The ongoing tax battle between the Canada Revenue Agency (CRA) and wealthy Nova Scotia businessman John Risley has taken another turn, with the federal government filing a detailed 100-page reply to Risley’s latest tax appeal. The CRA alleges that Risley underreported his income by millions of dollars a year over a 20-year period, totaling roughly $90 million in benefits that he received from his companies but did not declare on his taxes.

Risley, best known as the co-founder of Clearwater Seafoods, has filed three separate appeals challenging the CRA’s claims. The latest appeal covers the years 2012 to 2019 and was filed this summer. Risley maintains that he reported what he believed to be the correct amounts on his taxes and denies any wrongdoing.

In its reply filed last month, the federal government argues that the value of benefits Risley received from his companies, including properties such as his Halifax mansion, Chester estate, Montana ski lodge, and luxury yachts, far exceeds what was reported on his taxes. Under the Income Tax Act, benefits provided by a corporation to a shareholder are considered part of the individual’s income and should be taxed accordingly.

The CRA alleges that Risley’s companies funded his living expenses, hobbies, and personal endeavors, and that the value of the benefits he received was significantly higher than what was disclosed on his tax returns. In some years, the agency claims that Risley’s income from benefits was $6-7 million more than what he reported.

This dispute is just the latest chapter in a long-standing conflict between Risley and the CRA. The government contends that Risley has made misrepresentations in his tax returns regarding taxable benefits since 1985, leading to multiple reassessments over the years.

Risley has maintained that he is willing to pay tax on shareholder benefits but disagrees with the CRA’s calculations, arguing that they are inflated. His legal team has stated that he relied on accountants and tax specialists to advise him on tax matters.

The crux of the dispute centers around a property in Chester, NS, where Risley’s company built a mansion in 1998 using interest-free loans from Clearwater Fine Foods Inc. Risley claims that the house was used for corporate functions and long-term investments, while the CRA insists it was exclusively used for personal purposes.

Despite filing appeals related to the years 2000 to 2011 in 2018, these cases have yet to be adjudicated. Risley’s lawyer has requested to consolidate the new appeal with the older ones, prompting the government to push for a hearing to be scheduled. A Tax Court judge has requested both parties to find dates for a hearing before June 2026 to prevent further delays and potential evidence erosion.

The contentious relationship between Risley and the CRA shows no signs of abating, as both sides dig in for what promises to be a protracted legal battle over alleged tax discrepancies and unreported benefits.