As a result of the budget handed down by the federal government, Canadian recording artists may be forced to leave the country or invest their money in out-of-country tax shelters.
The elimination of income averaging annuity contracts (IAACs), announced last Thursday by Finance Minister Allen MacEachen, effectively wiped out the opportunity for acts such as Loverboy, Chilliwack, Rush or April Wine to guarantee themselves a lifetime monthly income long after their peak earning periods have passed.
As a result, warns Lou Blair, co-manager with Bruce Allen of Loverboy, Canadian entertainers and athletes may have to leave the country or find alternative means of protecting their earnings.
"I don't know if Loverboy or Rush will do it," Blair says. "But Loverboy will now have to consider it."'
"If it wasn't a band but one person that I had touring Europe at the moment," Rush manager Ray Danniels adds, "I'd tell him not to come back."
"We just got kicked in the teeth," Danniels continues. "We literally spent months in preparation and negotiations. The fact that I have spent thousands of dollars to find a way to live in this country and now have to spend thousands more to find out that I might have to leave is really wrong."
IAACs allowed entertainers and athletes - people whose careers are limited to a few peak years - to earn a guaranteed monthly income over terms of five, 10, 15 years or a lifetime.
Generally, this meant that a recording artist who earned $100,000 in 1981 could have bought an IAAC from an insurance or trust company that, under a 15-year term, would divide the $100,000 into 180 monthly instalments of $1,323.
Tax on the principal sum and all interest also would be paid to the Canadian government over the 15-year period.
By eliminating income annuity averaging, Ottawa in effect has demanded its share, which represents up to 50 per cent, right now.
The remaining 50 per cent does not represent a fixed income. Few Canadian pop artists earn the kind of money where they could even consider an IAAC.
A good example is Bachman Turner Overdrive, one of the first Canadian bands able to take advantage of the IAAC plan (which was introduced in 1971 and available only in Canada). BTO enjoyed enormous success between 1972 and 1976 and then plummeted to nothing.
It's a bizarre business that creates millionaires out of 20-year-olds and cuts them off at 24, but IAAC allowed BTO's members to create their own pension fund.
In 1981, Rush, April Wine and Loverboy approached a point where they were realizing a substantial amount of money for their years of slogging up and down North America. Guitarist Paul Dean is 35; Loverboy is his 17th band and the first one that has offered better than subsistence living but the IAAC that almost had been completed for him has been thrown out the window. Blair says he is now reconsidering their original plan, which was to set up an American corporation and freeze Loverboy's international earnings in the U.S.
"With Rush you're talking about one of the three top rock acts in the world right now," says Danniels. "Canadian talent finally can be successful and stay in Canada. Yet Canada has become the biggest problem that we face, even in simply crossing the border. What can we do when Geddy Lee (Rush's bass player) spends eight months of the year outside the country and brings back $8 million in revenue? The guys have paced themselves well over seven years and have bought new equipment or new houses accordingly but this is the first year that Rush has made enough money to be able to think about the future."
"There's an element of greed here," Blair agrees. "The government creates regulations that put Canadian talent in a position to earn a living but when the money starts being returned to the artist, after all the years he's put in, the government turns around and hits him for it."
"No question," Danniels declares. "The government is chasing us out."