I don't have a subscription to the Toronto Star. 😅
- gergeswillems
I fought the law and the law won
Maple Leafs winger Darcy Tucker fed the puck to Shayne Corson, who snuck a shot past the goalie to help seal a 6-3 win over the Phoenix Coyotes.
The men were more than just teammates; they were brothers-in-law and confidants who formed a pair that fellow Leafs called Brother Love, and their connection ran deep. A day before that Dec. 11, 2001 game, Tucker wired $32,000 to an account with a U.K. brokerage and joined Corson in investing in the risky world of foreign currency trading.
Their gambit scuffled in the early years, with Tucker and Corson each declaring millions of dollars in business losses.
But that was part of the plan, according to the Canada Revenue Agency.
The high-profile players’ investments were actually a tax sham designed to minimize the CRA’s cut of the millions they made from their NHL salaries, the tax agency alleges.
“These trades did not actually occur,” government lawyers allege in an ongoing court battle with Corson. Instead, it was an elaborate “tax loss creation scheme that used the appearance of such trading to generate a tax deferral and permanent tax savings.”
In court filings, Tucker and Corson deny the CRA’s allegations, saying the trades were real and were legitimately done with the intention to make money through currency speculation. Both men say their currency trading yielded a profit in subsequent years, and the income was reported and taxed.
Through a representative, both former Leafs declined to comment for this article.
Corson and Tucker are among the most prominent Canadians who the CRA allege have participated in a foreign exchange (forex) market tax scheme.
Darcy Tucker (left) and Shayne Corson pictured together in a promotional photo for Maple Leaf Blue paint.
More than 150 taxpayers have been reassessed for using the alleged scheme since the CRA began tracking the cases in 2010. The CRA said its crackdown has led to more than $600 million in taxes being assessed in the last 10 years.
“We view these types of transactions as offensive,” Ted Gallivan, assistant commissioner of the CRA’s compliance branch, said in a statement. “It is effectively wealthy taxpayers creating artificial losses to reduce the amount of tax payable.”
In most if not all the cases, according to CRA records filed in court, the taxpayers were conducting their purported forex trades with a British father-son duo, John and Tim Hodgins.
The Hodginses, working with several brokerages over the early 2000s, marketed the scheme to Canadians as a risk-free way to “create losses to obtain refund of current and prior years’ income taxes,” the tax agency alleges. The Hodginses could not be reached for comment.
In July 2000, Barrie-born Corson signed a three-year, $6.75-million (U.S.) contract with the Leafs, his favourite team from childhood. A few months later, a 25-year-old Tucker — who had married Corson’s sister two years earlier — inked a new four-year, $5.3-million deal with Toronto.
The taxable income from those lucrative salaries was reduced by the business losses both men reported from their forex trades.
From 2000 to 2002, Corson said he racked up more than $7.5 million (Canadian) in losses. Tucker reported losing nearly $1.02 million in 2001 and $1.14 million in 2002.
The CRA reassessed the players’ taxes, disallowing the claimed business losses and saddling the men with hefty tax bills. Corson and Tucker separately appealed the reassessments in 2015.
Corson “was and is a sophisticated investor and has been involved in a great variety of very sophisticated investment business situations,” the former player’s lawyer said in submissions to tax court.
Corson accounted for profits and losses from his forex trades in accordance with CRA’s established procedures, his court submissions said.
The foreign exchange market is the largest financial market in the world, with average daily trading topping $5 trillion (U.S.). Most traders deal with one another directly, without having to route their buy or sell orders through a centralized exchange like in a stock market.
The forex trades that have come under CRA’s scrutiny are forward contracts and options.
A forward contract is an agreement between a buyer and seller who commit to exchange a predetermined amount of currency at a predetermined rate on a certain date in the future, regardless of the value of the currency that day.
An option is a little different. At its simplest, an option holder has the right — but not the obligation — to buy (called a “call”) or sell (a “put”) a fixed amount of currency at a specific price on or before a designated date in the future. To acquire an option, a buyer must pay the seller a fee, known as a premium.
For example, if an investor thought the price of the U.S. dollar was going to weaken over the next month, he could acquire a “put” with the specified price — the “strike” — of the currency’s current rate. If he guessed right and the dollar went down, he can profit from the difference between the currency’s new lower value and its previously higher value — the options’ agreed upon “strike” price. If he guessed wrong, he loses his premium.
However, the trading strategy brokered by the Hodginses was never designed to make money, the CRA alleges.
The tax agency hired consultants to review the forex trading strategy. All the purported transactions were done in pairs of opposing trades completed often only a few days apart, so the investors would be buying and selling the same amount of a stable currency over a relatively short time frame, the consultant’s 2013 report found.
According to the report, these offsetting trades would effectively cancel out one another, meaning no money was made or lost, except for a small remuneration to the broker for facilitating the transactions.
“The strategy is only ever likely to break even,” the consultant’s report found. “The only apparent purpose of the strategy is to create time differences between the recognition of profits and losses.”
And that difference in timing is key, according to the CRA.
In what the tax agency calls a “straddle loss,” the investor closes out the losses for tax purposes in one year — this is the “loss leg” of the straddle. The offsetting “gain leg” of a nearly identical amount is closed out at a later date when it’s more favourable to the taxpayer.
The CRA alleges the purported trading was “window dressing to give the appearance” of legitimate transactions.
“Rather, they are simply purchasing a straddle loss for a fee,” the CRA records state.
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The CRA alleges the Hodginses marketed the tax scheme from 2000 to at least 2006 while working at several brokerages. The CRA is also scrutinizing Canadians’ transactions with the brokerage Velocity Trade International, where it says the Hodginses have worked since 2010. The Star tried contacting the Hodginses through Velocity but calls and emails went unanswered.
Among those now in the CRA’s sightlines for their interactions with the Hodginses is the Paletta family, Burlington billionaires known for their food-processing business, philanthropy and vast real-estate holdings.
Each year from 2000 to 2006, the Paletta family business — through the late patriarch Pasquale “Pat” Paletta, Paletta International Corporation and Tender Choice Foods Inc. — declared forex trading losses on their taxes, according to CRA records filed in court.
Altogether, the business reported losing more than $215 million (Canadian), according to a CRA report filed in court.
Burlington's Paletta family, seen here in 2013 with the late patriarch Pasquale "Pat" Paletta in front.
Paletta first met the Hodginses in 2000, introduced by a middleman who pocketed $120,000 for his match-making, according to the CRA allegations. The trades began shortly after.
“Tim is instructed (most often near the end of each taxation year) to create a straddle loss for each [taxpayer] in some targeted amount,” the CRA alleges in a 151-page paper detailing the Palettas trading.
The CRA alleges the set-up allows Hodgins “to selectively choose settlement dates so as to create applicable straddle ‘losses’ (and offsetting ‘gains’) in the approximate amounts required and at the times desired.”
The CRA alleges the only money that ever left the Palettas’ hands were the fees paid to the matchmaker and Hodgins for orchestrating the scheme.
In 2014, the CRA reassessed Paletta’s taxes, disallowing the millions of dollars the businessman had declared in losses stemming from the forex trades.
Paletta appealed those reassessments, saying the transactions were legitimate and that he made money after seven straight years of trading losses, earning $6.4 million in 2006 and $25.1 million in 2007.
Paletta’s appeal said the CRA initially audited his forex business losses in 2004 and 2005, which found “Paletta’s method of accounting to be acceptable for tax purposes.” The tax agency then did a second audit and issued a notice of reassessment well beyond the “normal reassessment period” for those tax years, which Paletta’s lawyers say is “an abuse of power.”
The reassessments have spawned a flurry of federal court filings between the government and the Palettas, who accuse the CRA of “grossly inflated reassessments [meant] to inflict harm to the Paletta family” and purposely putting them in “a perpetual state of tax audits.”
The law firm representing the Palettas declined to comment while the matter is still before the courts.
This isn’t the only time the wealthy family has drawn the ire of the taxman. In 2019, a judge sided with the CRA, which had disallowed attempts by Paletta’s son Angelo and the family business to write-off millions of dollars in expenses related to a foray into financing Hollywood film productions.
The complex financial transactions that resulted in the Palettas briefly owning the 2006 film “Night at the Museum” and 2008’s “The Day the Earth Stood Still” were “shams” designed to produce substantial tax savings, the judge found. The Palettas are appealing that decision.
In Toronto in the early 2000s, Tucker and Corson’s ornery style of play, alongside linemate Gary Roberts, earned them the nickname the Bay Street Bullies.
Tucker did more than share a line with Corson. He helped his close friend through crippling panic attacks. A Sports Illustrated article from 2001 describes “Tucksie” staying with Corson in their hotel room as the rest of the team dined together, listening to his friend’s fears and trying to calm him.
Corson and Tucker’s families lived five minutes from one another in Toronto, the article said, and they spent their summer in neighbouring cottages on a stretch of Muskoka lakefront they called “the family compound.”
Corson’s time in Toronto came to an abrupt end in 2003 when the then-36-year-old walked away from the team during a playoff series against Philadelphia. Corson had been a healthy scratch for the game but said his decision to leave was based on health concerns. On top of the panic attacks, he suffered from ulcerative colitis, which had flared up at the season’s end.
Tucker continued to play in blue and white until 2008, when the team bought out his contract. He continued to earn $1 million (U.S.) a year from the team until 2014.
Tucker abandoned his appeal of the CRA’s reassessments in 2016, according to a letter in the court file.
Corson’s appeal is ongoing. In a February 2020 letter to the court, a government lawyer said he and Corson’s representatives are “continuing settlement discussions and will require more time in order to determine whether the case will settle.”
