Written on behalf of Feigenbaum Consulting
According to the Canada Revenue Agency, Donovan Bailey, who won the Gold Medal for the 100m sprint at the 1996 Summer Olympics in Atlanta, Georgia, owes approximately $2.3 million dollars in unpaid taxes. Kate Pace Lindsay, who competed in three Winter Olympics and was ranked number one downhill skier in the world in 1993 also owes significant sums to the government. Both athletes were advised by the same tax lawyer.
The Toronto Star reported this week that the renowned athletes were involved in “tax shelter drama[s]” that have come to light in a series of recent court proceedings.
According to the Star, Bailey had an athletic trust in place that was intended to protect income from the prize money and sponsorship fees that he had received over many years of competitive track and field.
Problematically, the plan that Bailey was following was an alleged scheme in which his charitable donation was acting as a front for tax avoidance. By 2017, Bailey was owing almost $2.3 million to the CRA, and had filed a formal proposal to settle his outstanding debt under the Bankruptcy and Insolvency Act.
Alleged Tax Schemes
Bailey contributed $3.75 million with the to a charity with the understanding that he would receive a fairly high return on his investment. The donation was supposed to flow through a complex network of transactions before coming back to the athlete, tax-free, through an offshore trust. The plan allowed Bailey to transfer millions of dollars to offshore trusts using various foreign actors, including a businessman based in the Bahamas who was accused of stealing $20 million, and another individual who was shot dead outside of his office in the Caribbean.
The World Champion Skier
The man who advised Bailey also advised Pace Lindsay. At some point, the skier had accumulated $1 million in her athletic trust, where, like Bailey, she had been required to deposit all of her prize money and endorsement fees to maintain her status as an amateur athlete.
After she retired, Pace Lindsay was required to wind down the trust. She claims that she consulted with her tax lawyer against whom she has since filed a lawsuit. In her suit, Pace Lindsay claims that her lawyer did not explain that there was any possible risk in following his advice. She argues that she believed that she had retained a lawyer who “…would reduce my taxes but there had never been any suggestion that it might be questioned as illegal.” He recommended an offshore Canadian charity to donate to. Pace Lindsay later learned that her advisor had been involved in the charity’s foundation and had served as it’s lawyer.
The charity was registered to a mail box in rural Ontario, while its directors were all Bahamas-based businessmen specializing in offshore tax structures. After Pace Lindsay’s investment, the group that the Bajan businessmen ran became embroiled in conflict, vicious legal battles, and alleged assault. In 2009 one of the businessmen were shot dead outside of his office in Nassau.
In 2008, Pace Lindsay received a letter from the CRA telling her she was being audited. In January 2010, she received a further letter informing her that 100% of the $750,000 charitable donation she had claimed on her taxes was being disallowed because the charity she had donated to had their charity status revoked.
Those businessmen have since claimed that they relied on advice from the same lawyer Pace Lindsay consulted with to ensure their tax structures complied with the law of the relevant country in which their clients were based. The letter also claimed that her investment plan had been a scheme to cheat her way out of taxes owing, noting:
The ‘Donation Arrangement’ was orchestrated and promoted for the sole purpose of avoiding Canadian tax… (It) was a sham designed to make the appearance that there was a donation, that the funds were used for charitable purposes, when in fact, none existed.
The CRA also noted that it was considering undertaking a criminal investigation against her and others who had donated to the same charity.
The Olympic Gold Medallist
Around 2010 Bailey learned that the CRA was re-assessing his 2006 and 2007 tax returns in which he had claimed millions in charitable tax credits on the advice of the same lawyer who Pace Lindsay had relied on.
Bailey appealed the audit but the government stood its ground claiming that Bailey’s investment scheme was structured so that he could:
…eventually recuperate, at a bare minimum, the $3,750,000 he injected into the arrangement as if that amount of income would have been exempted from tax.
In late 2017, the CRA accepted Bailey’s proposal to settle his outstanding debt, claiming “suspicious tax planning based on erroneous professional advice”. He offered to pay $750,000 on what he owed, which would be covered by his advisor’s liability insurance.
Both athletes claim they received negligent advice. The lawyer who handled their affairs has denied, in official court filing, that his actions were negligent but otherwise did not comment.
If you are a professional athlete with significant income, obtaining knowledgeable and highly skilled advice is key to protecting your financial interests. At Feigenbaum Law, we provide a range of cross-border tax services to top athletes and entertainers in Canada and the U.S. Our experience and extensive knowledge of both countries’ tax systems have made us trusted advisors to producers, writers, musicians, actors, directors, professional athletes, agents, coaches, and managers who routinely come to us for assistance with their tax and legal work. Our services are always personalized and confidential. Contact us to learn more about how we can help or call us at (905) 695-1269 or toll-free at (877) 275-4792.