A Florida corporation (“iTransit”) served as a vehicle procurement arm for a second Florida corporation (“Gameday US”), which was in the business of providing transportation and traffic logistics for large sporting events. iTransit was owned 30% by the sole individual Florida-resident shareholder of Gameday US (“Vitrano”) and 70% by another Florida resident (“Pouncey”) who had procurement expertise. In 2008, Vitrano entered into a contract with the Vancouver Olympics organizing committee (“Vanoc”) on behalf of a new Canadian subsidiary of Gameday US (“Gameday Canada”) to provide transit bus services at the 2010 Winter Olympics, for fees payable by Gameday Canada to the taxpayer. Pouncey incorporated the taxpayer, which employed an individual (”Hill”), who had past experience in operating a coach company and in operating in past Olympic games. The taxpayer also entered into an agreement (the “iTransit Agreement”) prepared and executed late in 2010 but backdated by approximately two years pursuant to which it purportedly agreed to pay iTransit US$2,500,000 for support services and as a “commission” for securing the contract with Gameday Canada.
Pizzitelli J found (at para. 28) found that, at most, only approximately US$2.17 million of the amount was paid, and that this amount did not qualify as being deductible (other than the U.S.$400,000 portion conceded by CRA to relate to support services provided by iTransit), stating (at paras. 46, 47-48, 49):
[The iTransit Agreement was] an afterthought, something to legitimize the payment of amounts that had been made to iTransit for over two previous years to fund its operations… .
…[A]bsolutely no documentary evidence by way of receipts, vouchers , credit card statements or other supporting documentation was tendered in support of any expenses for which iTransit was seeking reimbursement.
Finally, the said agreement does not break down what portion was contemplated for support services versus what portion was for its assistance in securing the Gameday Canada contract… .
[E]ven if I accept payment can be made for past services, there must at least be some agreement as to the quantum or calculation of such fee or commission in advance in the context of business in order to characterize such payments as such. It is in the very nature of these types of payments that they are calculable on some objective basis and not merely discretionary… .
Finally, the evidence indicated that Pouncey had secured the contract with Gameday Canada on behalf of the (to-be incorporated) taxpayer rather than on behalf of iTransit.