Canadian Revenue Agency ruling on signing bonuses

[theVladiator]

Hmm... so the article is claiming the CRA are actually trying to argue the legalese of the definition of the type of income rather than the residency at the time? What a bizarre approach.

Well, according to agent Alan Walsh, Tavares should have talked to people that understand legalese before filing his taxes.

“It’s a very good example of why players need to surround themselves with the most competent representation,” said Walsh, whose agency, Octagon, represents basketball superstar Steph Curry. Walsh adds that the specific language used in the deal might be what makes the court rule in either Tavares or the CRA’s favour.

“The CRA has taken the position that since the signing bonus has conditions on it, and if a player does certain things, that’s no longer an inducement,” Walsh said. “By virtue of the language of the deal, it’s been converted to regular income, and can be taxed at a regular income tax rate.”

The OP linked a poorly written second hand source on this, see some more/better info here:

CTV News

 

[Breakers]

He wasn’t a resident resident of Canada at the first signing bonus

 

[JianYang]

How does leaving Toronto change his tax situation? It doesn't make the original transaction go away.

 

[Gordy Elbows]

https://athlonsports.com/nhl/toronto-maple-leafs/report-john-tavares-leave-toronto-legal-battle-cra-contract

This may have massive repercussions for Canadian teams to get Canadian players back into Canada

Better call Saul.

 

[Habby4Life]

Moral of the story, don’t be a high income earner in Canada if you can help it.

No be poor, that’s better, lol.

 

[Mr Kot]

 

[Pablo El Perro]

CRA is correct. It really is payment for services provided. Those services are taking place when he was a Canadian tax resident.

Yeah, even in the states, I can be a resident in a different state but pay taxes in the state I am employed in. Not being a millionaire, this was the case when I worked for companies in both Pennsylvania and Florida as a Florida resident. Not sure why his accountants thought there was a loophole on this. Unfortunately, he can't hold them accountable.

 

[Pablo El Perro]

You think he filed his taxes incorrectly? You think he doesn’t have a team of accountants and tax lawyers who pored over every detail of the contract to ensure it was structured in accordance with tax codes?

The contract was structured and signed in accordance with the rules laid out in the tax treaty betwen the US and Canada. In this case it’s the CRA who has assessed him incorrectly and now they’re trying to make the argument for why this bonus should be taxed as regular income instead of in the long standing manner that signing bonuses and other inducements for athletes, artists, actors and musicians are taxed which is very clearly laid out in the above mention tax treaty.

As accountants and lawyers, they should have understood that the language of the contract, particularly regarding signing bonuses, could've easily challenged. His own agent should have known this.

How does leaving Toronto change his tax situation? It doesn't make the original transaction go away.

Just a bad article, which, if he does leave of his own accord would prove the CRAs point as any bonuses he is still owed would be cancelled.

 

[Larry Hanson]

Wow, never thought I'd support the CRA on something.

He was paid up front but it was still for a job that he was doing in Canada. Imagine all of the US players on visas that play for a Canadian team flying down to Florida, getting their paycheque tax free, then flying back. Life doesn't work like that.

 

[Phion Keneuf]

Yes, just not for this reason. Millionaires should pay their fair share.

Fair share of what?

 

[SeanMoneyHands]

CRA still wants their $5M in unpaid taxes from John Tavares. Good luck with that.

 

[SupremeTeam16]

As accountants and lawyers, they should have understood that the language of the contract, particularly regarding signing bonuses, could've easily challenged. His own agent should have known this.


Just a bad article, which, if he does leave of his own accord would prove the CRAs point as any bonuses he is still owed would be cancelled.

Pat Brisson is Tavares agent, he runs probably the most successful agency in the NHL and has over a billion dollars worth of contracts that he’s negotiated playing in the league, these people are very thorough. CRA is trying to work an angle and that’s fine, that’s how the game goes, they’re doing something similar with some ex Blue Jays players and a court will rule on it. If the CRA loses it’s a pretty expensive fishing trip to come away with nothing, if Tavares loses he’s still got cards to play to reduce his tax liability.

 

[MadLuke]

They didn't file in accordance with the rules, they filed in a way they thought could subvert the rules. I feel no pity for millionaires who have to pay their fair share.

Not sure they would not need a trial if that was the case, it was a least not clearly outside the rules. It is not like those rules can be clear for all special scenario of the sorts.

When trials have more than a judge and they vote, it is often not unanimous, laws and rules and if they are subverted is not always clear.

 

[Mr Hat]

Yes, just not for this reason. Millionaires should pay their fair share.

Doesn’t the top 10% earners pay half our federal income tax?

Crazy how elite skills and work ethic “isn’t paying their share” when they pay for most of the government services they don’t use. Then entitled lazy people milk the system and nobody batts an eye.

No question why entrepreneurs stay out of Canada. Same applies for athletes. Who wants to make 15% less to live here where it’s cold, full of crime, tent cities and cost of living crisis.

Taxing players even more here isn’t helping the Stanley cup drought…

 

[Sidney the Kidney]

Pat Brisson is Tavares agent, he runs probably the most successful agency in the NHL and has over a billion dollars worth of contracts that he’s negotiated playing in the league, these people are very thorough. CRA is trying to work an angle and that’s fine, that’s how the game goes, they’re doing something similar with some ex Blue Jays players and a court will rule on it. If the CRA loses it’s a pretty expensive fishing trip to come away with nothing, if Tavares loses he’s still got cards to play to reduce his tax liability.

Do the agents handle the player's tax situation, though?

The reason I say this is my friend used to work for a large accounting firm that handled the tax stuff for a lot of Leaf players back in the day (Sundin-era Leafs). Also handled tax stuff for celebrities like Avril Lavigne at the time. Anyway, they (my friend's firm) handled the tax stuff through the player, not through the player's agent or tasked by the player's agent.

So I wonder if it's a case of Brisson fully understanding the legalities of the contract (ie. how legally binding it is, etc.), but then it's up to Tavares to have his own accountants to deal with any tax implications that arise from the contract, and that's where Tavares' accountant may or may not have dropped the ball.

 

[Silky Johnson]

You think he filed his taxes incorrectly? You think he doesn’t have a team of accountants and tax lawyers who pored over every detail of the contract to ensure it was structured in accordance with tax codes?

The contract was structured and signed in accordance with the rules laid out in the tax treaty betwen the US and Canada. In this case it’s the CRA who has assessed him incorrectly and now they’re trying to make the argument for why this bonus should be taxed as regular income instead of in the long standing manner that signing bonuses and other inducements for athletes, artists, actors and musicians are taxed which is very clearly laid out in the above mention tax treaty.

Except two things.

The CRA didn't assess him incorrectly. It's a self assessment system and the CRA legally reserves the right to challenge that assessment over a long time frame.

You can say that it's the manner of how bonuses have been assessed historically but it is really a very aggressive pushing of a slightly grey area.

CRA saw this as a very egregious example and stepped in and at least the lower court agreed with them

Self assessment is a horrible system that encourages lawers to push the boundaries of tax codes for wealthy clients while making it difficult for regular people to know where they stands - but it is the system we have.

PS

I have had a similar experience recently where before moving to a new higher taxed country I recieved a performance & retention bonus. When filling taxes in the new country I was advised to pay taxes on the retension because it was attached to a future time period but not the performance which was looking back.

 

[olli]

https://athlonsports.com/nhl/toronto-maple-leafs/report-john-tavares-leave-toronto-legal-battle-cra-contract

This may have massive repercussions for Canadian teams to get Canadian players back into Canada

“Trading Tavares or him signing with an American team at the end of the season could be a possibility for the leafs unless they wave him”. Unless they wave an 11M contract who’s still a good player??? And then when you click on the link attached to that it’s a buyout calculator. The author doesn’t even know the difference between waiving a player and buying them out. Even suggesting either for Tavares makes no sense.

 

[Magic 8 Ball]

Everybody hates taxes. The big difference is the rich can hire people to make sure they pay as little taxes as possible. Everybody else pays what they have to, and get excited when they get rebate.

 

[Chuck Testa]

Moral of the story, don’t be a high income earner in Canada if you can help it.

They tax the bag right off ya up here in Canada.

Everybody hates taxes. The big difference is the rich can hire people to make sure they pay as little taxes as possible. Everybody else pays what they have to, and get excited when they get rebate.

Excited over a rebate that's much lower than what people pay in.

 

[ShootIt]

Yea, not seeing an out for John. He was given a bonus by the Leafs as part of signing with Toronto.

If he didn't want to pay 50% of his signing bonus, probably shouldn't have signed with a Canadian team if money was a huge factor.

 

[SupremeTeam16]

Except two things.

The CRA didn't assess him incorrectly. It's a self assessment system and the CRA legally reserves the right to challenge that assessment over a long time frame.

You can say that it's the manner of how bonuses have been assessed historically but it is really a very aggressive pushing of a slightly grey area.

CRA saw this as a very egregious example and stepped in and at least the lower court agreed with them

Self assessment is a horrible system that encourages lawers to push the boundaries of tax codes for wealthy clients while making it difficult for regular people to know where they stands - but it is the system we have.

PS

I have had a similar experience recently where before moving to a new higher taxed country I recieved a performance & retention bonus. When filling taxes in the new country I was advised to pay taxes on the retension because it was attached to a future time period but not the performance which was looking back.

Sorry I should have said reassessed him incorrectly.

I’m not sure your situation is the same but I would be curious if you paid taxes on your bonus thus making it compensation which you received before moving to your new country, wouldn’t that make it compensation you received while still a resident of Canada meaning if the CRA wanted to, could reassess your Canadian filing for the year?

If Tavares loses what he’ll likely do is try and re-file in the US so he can get foreign tax credits. Doing so he could be able to invoke an article of the Canada/US tax treaty which would force the CRA to work out a deal with the IRS so that Tavares isn’t double taxed.

 

[SupremeTeam16]

Do the agents handle the player's tax situation, though?

The reason I say this is my friend used to work for a large accounting firm that handled the tax stuff for a lot of Leaf players back in the day (Sundin-era Leafs). Also handled tax stuff for celebrities like Avril Lavigne at the time. Anyway, they (my friend's firm) handled the tax stuff through the player, not through the player's agent or tasked by the player's agent.

So I wonder if it's a case of Brisson fully understanding the legalities of the contract (ie. how legally binding it is, etc.), but then it's up to Tavares to have his own accountants to deal with any tax implications that arise from the contract, and that's where Tavares' accountant may or may not have dropped the ball.

In this case it’s the structure of the contract which is being challenged by the CRA so that’s where the mistake is, if in fact the courts rule that his bonus was compensation and not an inducement.

You are correct that in most cases a players finances are handled by someone else rather then their player representation, however large agencies like CAA still employ teams of accountants and tax lawyers who are apart of the process and consulted when player contracts are being drawn up.

 

[Ulysses31]

JT screwed again

 

[Bjindaho]

In this case it’s the structure of the contract which is being challenged by the CRA so that’s where the mistake is, if in fact the courts rule that his bonus was compensation and not an inducement.

You are correct that in most cases a players finances are handled by someone else rather then their player representation, however large agencies like CAA still employ teams of accountants and tax lawyers who are apart of the process and consulted when player contracts are being drawn up.

This is factually incorrect.

The articles actually say that CRA believes that he was a resident in Canada at the time of signing and that beyond that, he would still owe the money even if he wasn't because of the conditions of the deal.

Tavares' counterclaim is that he spent more than 183 days outside of Canada and was living in the US at the time of signing.

 

[Toby91ca]

I have to say I don't know any more about tax laws than the average person does, but to me the CRA seems right. He's being paid to play hockey in canada. He's a Canadian resident for the duration of the contract, to me it seems he should be paying Canadian taxes. The bonus seems to be just upfront payment for him to do his job. Paying a lump sum up front just seems like a way to dance around the rules, it shouldn't affect the tax he has to pay. It should be treated as salary.

Exactly, the Leafs are paying him $15M to come play for them, they are paying for his services.....at time of payment, he hasn't provided any services yet. This is similar to accounting rules, what are you paying for? Future service or past service....will determine whether it's an immediate expense (or something else) or expense over time as services are provided. That said, tax and accounting often have differences with taxes being based on very specific laws and specific items, etc., I haven't studied the various items involved here. I thought with this one though there was something about importing talent into the country and there was separate tax rules for that.

There is nothing new in that article compared to what I read a long, long time ago on Tavares situation with the CRA, so not sure what the article's author is getting at.....nothing new to see here.