Coleman explains that the tone of this case matters because it appears that the CRA changed its interpretation of the rules here. Tavares and Maple Leaf Sports and Entertainment (MLSE) would have been expertly advised on the structure of the contract, yet the CRA seems to have changed their perspective on the rules. While the CRA is well within its rights to do so, Coleman notes that it adds a degree of uncertainty to the system which makes anybody who could be subject to a similar tax bill quite wary.
That potential chilling effect on talent seeking opportunities in Canada could compound the trend Coleman now sees of Canadians seeking to move to the US for better paying work and lower taxes. He has even seen some remote workers relocate to lower tax jurisdictions while keeping their Canadian jobs. At a moment when Canada already appears somewhat less attractive from a tax and economic growth standpoint, especially compared to the US, Coleman believes this case gives talented Canadians one more reason to look elsewhere.
“We could have a brain drain, and we’ve already begun to see that,” Coleman says. “Capital is not really coming to Canada. We’re negative on foreign investment across the board, so trying to find ways to increase our productivity, increase investment into Canada. I think one would fairly ask if the CRA is acting in a way that’s congruent with that.”
Financial advisors need to be watching the outcome of this case both for its immediate tax implications and what its example may prompt clients to decide. If and when clients come to their advisor saying they need to move and escape the current tax situation, Coleman says its crucial for advisors to outline the various implications. In working to ensure that clients can make the moves they want, their advisors need to explain what investments can and can’t move with them, what complicating factors may arise, and what additional expert advice from lawyers and accountants may cost.
While the topline tax numbers in the US certainly appear more appealing than Canada’s, Coleman notes that the two systems come with unique eccentricities advisors must be aware of. “It’s almost like we’re two different countries or something,” he jokes.
