More information has come out on an ongoing situation between the Toronto Maple Leafs' John Tavares and the Canada Revenue Agency. At issue is a massive signing bonus Tavares received from Toronto in 2018, and whether it was actually even a bonus. The ruling could have a big impact on the ability of Canadian NHL teams to attract big names.
Tavares decided to file a court case against the CRA in January after he received a re-assessment of his 2018 tax filing which said he owed $8 million. In 2018-2019, Tavares received $15.25 million of his 16.9 million salary in the form of a signing bonus upfront. In his court filing, Tavares said the $15.25 million should be taxed as a signing bonus under the Canada-US Tax Treaty at 15 percent instead of being taxed as income, arguing he would have received the money if he were injured, dropped from the roster, or a labour disruption took place between the NHL and its union. In its response to his court filing, the CRA disagrees.
"...if at any time during any League Year, [Tavares] breached the Contract, voluntarily retired, withheld his services (including a refusal to report, practice, or play), or left the Toronto Maple Leafs the Appellant would only be entitled to retain a pro rata portion of the ‘signing bonus"
Essentially, the CRA says because Tavares would have had to give some of the money back under any of those circumstances that it's not a signing bonus; it's income and should be taxed at the usual rate of around 33 percent. No hearing date has been set yet, but a loss for Tavares in this case could set a precedent that would make it even more difficult for Canadian teams to attract high profile free agents.
American hockey teams like the Florida Panthers, Tampa Bay Lightning, and Vegas Golden Knights already have a huge advantage over Canadian teams as players pay no state income tax on their earnings. This would only add to the hardship if it becomes the norm.
