The Canada Revenue Agency denied charitable credits after a complicated tax strategy fell apart
Donovan Bailey, a former Olympian once known as the world’s fastest man, reportedly owes a fortune to the Canada Revenue Agency (CRA) following an investigation into a scheme that promised he would recover — on a tax-free basis — the bulk of a sizeable charitable donation.
Bailey had built up $3.75 million in an athletic trust over years winning prizes and earning sponsorship fees, reported the Toronto Star. The trust had to be wound down upon his retirement, and he wanted to minimize the amount that would go to the CRA — which is why he became interested in an unconventional tax scheme.
“The plan’s architect was Stuart Bollefer, a Bay Street tax lawyer with the firm Aird & Berlis,” the Star said. The scheme ostensibly involved shuttling money through offshore trusts with the participation of Britannia Group, a Bahamas-based company.
Bollefer had reportedly also promoted the plan to other clients, including alpine skier Pace Lindsay, another former Olympian. As per the Star, Bollefer’s game plan for Lindsay started with a $750,000 donation from which she could claim a charitable tax credit. The charity would pass the money on to a Jamaica-based university, which would use the money — minus a 15% cut — to purchase life insurance from Hampton Insurance, a member company of Britannia Group.
The insurance plan would have another offshore trust as a beneficiary. “Bollefer explained ... that the majority of the money would be returned to me on the death of the person whose life was insured,” Lindsay said in court filings cited by the Star. “At no time did he explain to me that there was any risk in following his advice.”
Lindsay was told to make her donation to the Dillon Foundation in 2006. At that point, however, the foundation had had its Canadian charity status revoked for failure to file an annual return. The failure was linked to infighting among the charity’s directors, a group of Bahamas-based businessmen that included the head of Britannia Group.
In 2008, the CRA informed Lindsay that she was being audited; in 2010, they said 100% of the $750,000 charitable donation she’d claimed was disallowed, and that the donation arrangement she’d followed was a tax cheat scheme. A criminal tax lawyer hired by Aird & Berlis met with a CRA investigator in 2012 and convinced him not to pursue criminal charges against Lindsay, though she eventually had to pay more than $430,000 to settle the CRA’s reassessments, the Star said.
In Bailey’s case, the CRA sent notice around 2010 that it was reassessing his 2006 and 2007 returns, where he had claimed millions in charitable credits. The advice Bollefer had given Bailey relied on some of the same offshore entities that he recommended for Lindsay, but tax court filings indicated that he donated directly to the university in Jamaica.
As of October 2017, Bailey owned just $3,000 worth of possessions but owed nearly $2.3 million in taxes; he earned around $2,000 from sporadic jobs providing sports commentary. Late last year, the CRA accepted a deal to let Bailey off the hook for $750,000, which was paid for by Bollefer’s and his firm’s liability insurance.