Driving the news: Toronto Maple Leafs captain John Tavares is in a heated face-off against the Canada Revenue Agency (CRA). The hockey star claims the tax body miscalculated what he owes on the US$15.3 million signing bonus he got when joining the Leafs in 2018.
- The CRA determined that Tavares failed to pay taxes on the bonus as part of his salary (taxed at ~38%) and owes over $8 million in back taxes plus interest.
Catch-up: Signing bonuses for U.S.-resident athletes joining a Canadian team are taxable, but, as part of an exemption, can’t exceed a 15% rate. Tavares argues his bonus should be taxed at 15% as he was a New York resident in 2018 and spent just 45 days in Canada that year.
- Tavares wants that $8 milly. With one more year left on his deal, and in the midst of a career-worst season, his next contract might not be as lucrative as his current one.
Yes, but: Aside from this exemption, signing bonuses in Canada are treated as regular ol’ salary. The CRA likely determined that Taveres’ bonus didn’t qualify for the exemption as a Canadian employer paid it while he lived and worked in Canada (aka, not New York).
Why it matters: The result of the dispute could have ripple effects for other teams. Besides the colder weather and less-flashy locales, Canadian franchises already struggle to attract top-end talent due to a top federal tax rate that’s higher than that of many American states.
- While states like New York and California have comparable rates to those in Canada, they also offer global fanbases, exciting vistas, and unmatched sponsorship opportunities.
Bottom line: If the CRA wins, Canada’s tax coffers will be $8 million richer, but it could make other athletes skeptical of the tax exemptions meant to lure them north. Meanwhile, teams in Florida and Texas, where there are no income taxes, will become even more attractive.—QH