John Tavares, the captain of the Toronto Maple Leafs, is suing the Canada Revenue Agency for a $8 million tax bill. Experts believe this case could be crucial for some professional sportsmen, potentially influencing which teams they sign.
The NHL player, who signed a $77 million US contract to play for the Leafs in 2018, has filed an appeal with the CRA regarding the amount owed in back taxes and interest.
Richard Powers, an associate professor at the University of Toronto’s Rotman School of Management, stated, “It’s a pivotal case and everyone will be watching.”
The $15.25 million US signing bonus is in question. According to Tavares, it should be taxed at a far lower rate than the remainder of his income because of the U.S.-Canada Tax Treaty. The CRA is not in agreement.
NHL players use signing bonuses to stretch out the contract’s value and structure their contracts so their tax burden is kept to a minimum. In the first year of his seven-year deal, Tavares was paid $15.9 million US. Of that, only $650,000 US represented his actual pay. Everything else was his signing bonus.
According to court filings, the CRA feels that all pay ought to be regarded as a salary and subject to the same taxes.
A big stone structure has a sign outside that reads “Canada Revenue Agency.”
According to CRA court filings, Tavares’s whole compensation package ought to be regarded as a salary and subject to the same taxes. (Reuters/Chris Wattie)
“Fighting the CRA is an uphill battle,” said Rob Kreklewetz, an unrelated tax attorney with Millar Kreklewetz LLP. “The burden of proof shifts to the taxpayer to disprove whatever the CRA has assumed.”
The bonus “was an inducement to sign” and not “salary, wages or other remuneration” in accordance with the conditions of the treaty, according to Tavares’s notice of appeal.
The incentive was paid “regardless of whether” the Leafs played him, traded him, canceled games due to a labor dispute, or Tavares “was injured… or he was sent down to the minor leagues,” according to court documents that present a crucial point of contention in the case.
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