Part 72 of my ongoing love-hate relationship with CBC’s “investigative journalism” group.
If you are not interested in a long detailed rant about the arcania of Amateur Athlete Trusts and offshore tax planning for Canadians then you should stop reading right now.
First of all, I love getting media as you might have noticed. I believe in the Donald Trump school of marketing => say interesting things and the media will give you free advertising. But I always try to tell the CBC’s investigative journalists the truth, and they try to use what I say to achieve whatever editorial slant they have already decided to take regardless of the facts.
The slant in the CBC bit on Elvis Stojko was to make it seem like he was somehow up to no good in setting up a trust Belize. Nothing could be further from the truth. All that happened (and I told the CBC this very clearly) is very good and compliant tax planning from a Canadian perspective, and good structuring taking into account the fact that he had moved to Mexico.
So lets start with Amateur Athlete Trusts (“AATs”). Key facts that the CBC kinda forgot to mention: 1) AATs are designed to allow amateur athletes to make money and remain amateurs, so the whole thing is just ridiculously contrived from the get-go; 2) AATs result in prize money being put in trust, and the athlete is only taxed on amounts distributed for their benefit as “income” (note this is important for later, and my taxy friends will immediately see where this is going…) but not the income earned by the prize money until it has been in the AAT for 8 years; 3) the tax on any amount distributed to the athlete is 60%. Yeah 60% (!!!FFS!!!) of all amounts distributed … as income.
Of course you are going to plan around that kind of a tax rate!
If you put the prize money into a life insurance policy in Canada (joint second-to-die on the life of his parents in Elvis’ case) then two things happen. First, any additional growth in the assets does not throw off “income” (evergreening the AAT so the 8 year rule does not apply) and also the death benefit is capital dividend for tax purposes and also not income from a Canadian tax perspective. So the 60% tax never applies. Added bonus feature, life insurance policies are “excluded rights and interests” under s.128.1(10) of the Income Tax Act so they are not deemed to be disposed of if you leave Canada. As a result, when the asset was transferred to a non-resident trust in Belize for the same beneficiaries as the AAT, the policy never actually left Canada and no tax event took place from a Canadian tax perspective. If Elvis did not need the funds, this is just good tax planning, …and I told the CBC this very clearly.
Second big issue. Elvis moved to Mexico with his wife, who is also a skater. Mexico is a dangerous place. You need to protect your ass… sets. At the time, La Hacienda, as the Mexican tax authorities are referred to, was notoriously porous; any information they received would be immediately known by the cartels. It was so bad, back in the day, it was allowable for rich Mexican residents to ask their accountants to calculate their tax owing for the year, have the accountants pay the tax and get a numbered receipt. Then if they were audited, they could show they had paid their tax, they just had not given up any personal information. You know its bad – clearly no one in their right mind trusts the authorities when the authorities accommodate the fact that everyone knows they can’t be trusted! Which I also explained to the CBC, but in their view is Elvis never mentioned this issue, so it is not relevant.
But I know it is relevant because his advisors would have been aware even if Elvis was not. My immediate thought was that when he moves to Mexico, if the cartels find out he has a $6.5m policy on his parents, they would have no qualms about killing his parents and then kidnapping his wife knowing he had $6.5m in cash coming.
Now, in Mexico, there is a tax structure, so I have been told, called a “Fideicomiso”, which is basically a trust; if you do not control the assets, you are not taxed on the income from the assets. So the Belize trust was a fideicomiso, and therefore ostensibly not taxable in Mexico. Therefore, keeping it secret from La Hacienda may have been offside technically, but hardly a crime when, again, they leak like a sieve to the cartels. FYI, La Hacienda has gotten its poop in a loop recently, but back in the day…
I also would have also protected all his information from La Hacienda and “layered” the transaction to keep it quiet. I would not have used Belize because I can come up with about 8 better ways to do this off the top of my head. By the way, I am a Canadian tax lawyer so I owe duties of candor and compliance in Canada, but I owe nothing to the Mexican government, especially when they leak like a sieve to the cartels. In my view, this entire structure is tax compliant and proper planning on the entirety of the facts.
Again, I told all this to the CBC and they largely ignored what I said.
However, they did ask me why, given all of the Panama, Paradise and Pandora papers disclosures, any Canadian would put assets offshore? So I told them why and they only used one of the many good reasons why wealthy Canadians should put much of their assets outside of Canada for the sound bite, but that is another rant for another day. Rant out.
JNG