written on behalf of Feigenbaum Law
A recent investigative report by the Toronto Star alleges that two former Toronto Maple Leaf players, Darcy Tucker and Shayne Corson, were involved in a foreign currency trading scheme that was designed to defraud the Canada Revenue Agency (CRA). The story looks at how the scheme worked, and why the CRA says it was a scam.
What is the Foreign Exchange Market?
The foreign exchange market (the “Forex”) is a legitimate trading market where people trade currencies directly with one another. The Star reports that over $5 trillion (US) is traded on the Forex every day. The market is always open, with Asian offices opening when offices in North America close for the day. Most of the time, trades are done on a 1:1 basis as individuals trade with one another. There is no central office for the Forex, and trades are instead made directly between individual traders online.
While the Forex is in itself a legitimate market, it can be used for fraudulent purposes. The Forex is where the CRA alleges that the scheme used by the players was born. Since trades can be done between individuals, it’s possible for parties to agree to make an exchange on one day, and then reverse it with another exchange at the same value at a later date.
For example, if a person wanted to show a loss of revenue in one tax year, they could make a trade that loses money on one day, and make the opposite trade later on in another tax year when showing a profit would not be a disadvantage for tax purposes.
How Did the Alleged Scam Work?
The CRA’s investigation into the trading activities of Mr. Corson and Mr. Tucker is part of a larger investigation targeting over 150 Canadians in what the CRA calls a foreign exchange market tax scheme.
Both individuals inked lucrative deals with the Toronto Maple Leafs in the early 2000s. They worked with a British father-son team who in turn worked with a number of brokerages through the early 2000s. They used forward contracts, which are agreements between buyers and sellers to commit to exchange foreign currencies for a set rate on a certain date in the future. The set rates could be designed to show a loss one year, and a gain in the next.
The CRA alleges that Tucker and Corson made it appear as though they had lost money in certain trades, but that the money didn’t ever actually exchange hands, meaning the trades didn’t ever really take place. Instead, they paid a fee to the father-son duo who managed the trades on their behalf.
The CRA reassessed both players on their taxes for some of the years they played in Toronto and were alleged to have participated in the scheme. Tucker appealed but abandoned his appeal in 2016. Corson, meanwhile, has continued to appeal. Both players have denied the allegations and replied through the courts that the trades were real, as were the profits they reported in the subsequent year.
Athletes playing in major league sports in Canada can sometimes face unappealing tax situations, especially with taxes sometimes being higher in Canada than parts of the United States. There are many ways to be smart and strategic about tax planning for athletes or other high-income earners, though. The team at Feigenbaum Law offers a wide range of services to our clients in sports and entertainment. We take a personal approach to their tax or business issues and work to help them succeed financially without running afoul of tax laws. Contact us online, or call us at (416) 777-8433 or toll-free at (877) 275-4792 to learn more about how we can help.