A court battle between the CRA and the Toronto Maple Leafs captain may be significant for other professional athletes.
Toronto Maple Leafs captain John Tavares is suing the Canada Revenue Agency over a $10-million tax bill in a case
that experts believe might be important for certain professional athletes, potentially influencing which teams they
sign with.
The NHL player has filed an appeal with the CRA regarding the bill for back taxes and interest, which dates back to
2018, when he signed a $77 million US contract to play for the Leafs.
“It’s a pivotal case, and everyone will be watching,” says Richard Powers, an associate professor at the University of
Toronto’s Rotman School of Management.
Tavares claims that under the US-Canada Tax Treaty, a $15.25 million US signing bonus should be taxed at a
considerably lower rate than the rest of his pay. The CRA disagrees.
Signing bonuses are used by NHL players to structure their contracts in a way that limits their tax obligation and
spreads out the contract’s worth. Tavares earned $15.9 million US in the first year of his seven-year contract. Only
$650,000 US represented his actual income. The remainder was his signing bonus.
The court filings demonstrate that the CRA believes the full remuneration package should be considered as salary
and taxed accordingly.
“It’s an uphill battle when fighting the CRA,” said Rob Kreklewetz, a tax lawyer at Millar Kreklewetz LLP who is not
engaged in the case. “The burden of proof shifts to the taxpayer to disprove whatever the CRA has assumed.”
Tavares’ notice of appeal states that the incentive “was an inducement to sign” rather than “salary, wages, or other
remuneration” under the terms of the treaty.
The court filings, making a major claim in the case, state that the bonus was payable “regardless of whether” the
Leafs played him, traded him, if games were cancelled due to a labor dispute, or if Tavares “was injured… or he was
sent down to the minor leagues.”
