Chrysler Canada and the Canada Revenue Agency have resolved a tax dispute that tied up C$355 million ($275 million) from the auto maker’s coffers at a time when it is struggling to stay afloat.

The deal also removes a lien against Chrysler’s assembly plant in Brampton, ON, and helps pave the way for emergency government aid the auto maker says it needs to survive the current economic meltdown.

The dispute centered on a CRA claim Chrysler Canada generated higher taxable earnings than reported from 1996 through 1999. Chrysler said any debt belonged to Daimler AG, successor to its former parent DaimlerChrysler AG.

The dispute was referred to a resolution process but not before Chrysler was bound, despite denying liability, to post as collateral cash and assets equal to 50% of the amount owed.

The outlay, coming as it did in the midst of a market nosedive, threatened to undermine Chrysler Canada’s manufacturing operations, Vice Chairman and President Tom LaSorda told a Canadian parliamentary committee hearing last month.

Chrysler declines comment on the resolution, but Daimler spokesman Han Tjan says the “tax issues have been settled.” However, Tjan is unaware of the settlement terms.

An informed source tells Ward’s the deal was struck last weekend as the Canadian Auto Workers union was ratifying an agreement that gives labor-cost relief to Chrysler.

A successful resolution of the tax dispute and the negotiation of labor concessions were critical to Chrysler’s future in Canada, LaSorda testified. Without them, the auto maker would be forced to contemplate the relocation of its Canadian manufacturing operations.

Daimler confirms it has divested itself of the 19.9% stake it had retained in Chrysler since the auto maker was acquired by Cerberus Capital Management LP.

Chrysler, Cerberus and the U.S. Pension Benefit Guaranty Corp. signed a binding term sheet that also will see Daimler forgive repayment of loans it extended to Chrysler. In addition, Daimler has agreed to pay $600 million into Chrysler’s pension plans in three installments between now and 2012.

“In this way, Daimler is helping to secure pension payments to former employees of DaimlerChrysler,” the auto maker said in a statement Monday.

DaimlerChrysler was established in 1998, when Chrysler Corp. was joined with Daimler-Benz AG, and continued until 2007, when Cerberus acquired the Chrysler part of the business.

Going forward, ties between Daimler and Chrysler “will solely consist of supplier-customer relations, including limited support for certain dealer financing until the end of September 2009,” Daimler says in the statement.

emayne@wardsauto.com