Canadian Revenue Agency ruling on signing bonuses

[I Hate Blake Coleman]

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…

Boo hoo. My heart bleeds for those people.

 

[Toby91ca]

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.

I think residency is only part of the issue and a much smaller one. I think the big issue with Tavares is whether the bonus should be treated as a bonus for tax purposes or not, so a true bonus. For bonuses paid to professional athletes, they are tax differently as they are assumed to be incentives to sign the contract, not for service, not something that is paying for future service. Residency comes in as to when you are receiving that of course, but in Tavares case, I have a hard time concluding his signing bonus should be taxed as a signing bonus. He signed a $77M contract, of which $71M was a signing bonus and $6M was regular salary. No was is $71M an incentive to sign the contract and no future service attached to that, the actual service is covered by the $6M....come on.......

 

[SupremeTeam16]

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.

How international athletes are taxed in Canada: Toronto Maple Leafs' captain John Tavares embroiled in tax litigation with CRA

The issue is a very binary one.

www.canadian-accountant.com

Here is an article written by a CPA/tax lawyer, in it you’ll find that the basis of the CRA’s claim is that because of the wording in the contract, his signing bonus should be considered compensation rather then inducement meaning it wouldn’t be subject to the article in the tax treaty which provides for more favourable taxation for the athlete. Now these are extremely complex matters that are certainly above my level of knowledge so it could be that his residency could also be a factor in the dispute.

Regardless, the result of the disputes the CRA has brought against pro athletes could impact the already tenuous willingness of players in major sports to sign in Canada. They could be inadvertently chasing off hundreds of millions in future taxable earnings just to claw back a few million and while burning through resources to do so.

 

[LeafGrief]

Boo hoo. My heart bleeds for those people.

Declaring that you do not have empathy, or do not care for "fairness" for those more fortunate than you is not the moral flex that you think it is. You are almost certainly more fortunate than 99.9% of human beings who have ever lived, but I'd bet you believe you deserve fairness and justice in your life.

Empathy means loving all of your neighbours, rich, poor, and equal alike. Justice is blind.

 

[notbias]

I am hoping this goes JT's way, this will be bad for Canadian teams in the future I think.

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.

Don't they do exactly what you are saying?

They are on a Visa in Canada, so their bonuses likely aren't getting taxed in Canada, but where their residence is.

Might be wrong, but pretty sure that is how it works.

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.

If he didn't play, would he have to return the bonuses and would insurance cover them if he was on LTIR?

I don't think these bonuses should be considered income (at least it makes no sense to me).

Are all bonuses given out considered income?

 

[Silky Johnson]

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.

Other way round. I was in one country and moved back to Canada. Performance bonus was deemed payment for past work and was not taxable in Canada. Retension bonus was considered as payment on future work and was taxable.

Both payments were made in the other country.

That being said I didn't push it hard. CRA speaks as though they decide on tax law - they don't but court is expensive.

As to him re-filing in the US won't it end up in the same result? Most of the double tax rules just give credits and end up netting out the same.

 

[Tobias Kahun]

I am hoping this goes JT's way, this will be bad for Canadian teams in the future I think.



Don't they do exactly what you are saying?

They are on a Visa in Canada, so their bonuses likely aren't getting taxed in Canada, but where their residence is.

Might be wrong, but pretty sure that is how it works.



If he didn't play, would he have to return the bonuses and would insurance cover them if he was on LTIR?

I don't think these bonuses should be considered income (at least it makes no sense to me).

Are all bonuses given out considered income?

People on visas who work in Canada, get taxed in canada

 

[Larry Hanson]

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…

Yes the top earners in Canada pay most of the tax, problem is that Tavares wants to be a top earner and not pay taxes on a big chunk of income.

Don't they do exactly what you are saying?

They are on a Visa in Canada, so their bonuses likely aren't getting taxed in Canada, but where their residence is.

Might be wrong, but pretty sure that is how it works.



If he didn't play, would he have to return the bonuses and would insurance cover them if he was on LTIR?

I don't think these bonuses should be considered income (at least it makes no sense to me).

Are all bonuses given out considered income?

I don't pretend to be a tax expert but I don't think so. If you are working in Canada for a Canadian company you pay taxes in Canada.
If he didn't play because of LTIR the bonuses would be covered by insurance (if the contract is insured).
Why would you not think that bonuses shouldn't be part of a persons income? Everyone else pays tax on bonuses, it would be a major tax loophole otherwise. Companies would pay all of their employees in bonuses if they were exempt to avoid the payroll taxes CPP and EI liability.

 

[Beukeboom Fan]

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 a CPA - this is one of those times where details matter and tax authorities can challenge previously assumed treatment. As I understand it, they're saying that because there are conditions in which the "signing bonus" must be returned, that's not truly a signing bonus because all of the requirements to be earned are not met at time of payment. YMMV. It'll be interesting to see how this plays out, but when other sports organizations go back after atheletes for the signing bonuses (the LB who retired for the 49'ers, etc.) it "opens up" organizations/players for previously held assumptions with regard to the treatment of those SB's.

 

[notbias]

People on visas who work in Canada, get taxed in canada

So all NHL players who are US citizens working on a Visa get their bonuses taxed in Canada?

 

[FiveFourteenSixOne]

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

They do.

They pay more in a single year than the average Joe pays in his entire life.

 

[notbias]

Yes the top earners in Canada pay most of the tax, problem is that Tavares wants to be a top earner and not pay taxes on a big chunk of income.

I don't pretend to be a tax expert but I don't think so. If you are working in Canada for a Canadian company you pay taxes in Canada.
If he didn't play because of LTIR the bonuses would be covered by insurance (if the contract is insured).
Why would you not think that bonuses shouldn't be part of a persons income? Everyone else pays tax on bonuses, it would be a major tax loophole otherwise. Companies would pay all of their employees in bonuses if they were exempt to avoid the payroll taxes CPP and EI liability.

Bonuses are covered by insurance? Why doesn't every team just toss bonuses around? This is news to me.

 

[Bjindaho]

How international athletes are taxed in Canada: Toronto Maple Leafs' captain John Tavares embroiled in tax litigation with CRA

The issue is a very binary one.

www.canadian-accountant.com

Here is an article written by a CPA/tax lawyer, in it you’ll find that the basis of the CRA’s claim is that because of the wording in the contract, his signing bonus should be considered compensation rather then inducement meaning it wouldn’t be subject to the article in the tax treaty which provides for more favourable taxation for the athlete. Now these are extremely complex matters that are certainly above my level of knowledge so it could be that his residency could also be a factor in the dispute.

Regardless, the result of the disputes the CRA has brought against pro athletes could impact the already tenuous willingness of players in major sports to sign in Canada. They could be inadvertently chasing off hundreds of millions in future taxable earnings just to claw back a few million and while burning through resources to do so.

Residency matters because the clause he is using only exists in the US. If he is a Canadian resident at the time of signing, then the other part isn't a debate.

 

[Soundwave]

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…

Yes. The higher earners pay the vast majority of tax, the whole "pay your fair share" stuff is a load of BS, higher earners already pay more than their fair share at a higher tax rate, they carry a majority of the tax burden that everyone else benefits from. Without that, say bye bye to health care, education, etc. as the government would fall apart with more than half of their tax revenue gone.

 

[Larry Hanson]

Bonuses are covered by insurance? Why doesn't every team just toss bonuses around? This is news to me.

Insurance only covers a contract if the player is injured, why would it benefit teams to give out more bonuses?

 

[notbias]

Insurance only covers a contract if the player is injured, why would it benefit teams to give out more bonuses?

Because bonuses are attractive to free agents, might be able to bring the AAV down or get the player you want.

I doubt bonuses are covered if a player goes on LTIR, but if you know, great, I just find it odd that it is covered.

 

[Martin Skoula]

They do.

They pay more in a single year than the average Joe pays in his entire life.

No see 10 billionaires paying 50+% instead of 100 billionaires paying 20% is better because there’s less money going into the system but we get to pat ourselves on the back for sticking it to someone we’ll never meet and having them take their money elsewhere.

 

[notbias]

People on visas who work in Canada, get taxed in canada

Signing bonuses offer income protection if there’s a lockout, and they must be paid even if the player is bought out. They often come in advance, meaning the player can invest the money sooner, but they’re treated very different from salary by Revenue Canada. The first 15 per cent of a signing bonus will be taxed in Canada. For Americans in Canada, the rest will be taxed at the rate of the state or province he resides.

Leafs centre Auston Matthews is a good example. Matthews is an American who plays in Ontario but resides (as far as we know) in Arizona. He’ll earn $700,000 in base salary and $15.2 million in bonuses next season. His salary will be taxed largely at the Ontario rate of 53.53 per cent. The signing bonus will be taxed at Arizona’s rate of 41.5 per cent. (The first 15 per cent goes to Canada, the rest — 26.5 per cent — to Arizona). That’s about $1.4 million in savings, said Scherer.

I am only talking about bonuses, I know income is taxed in Canada.

 

[Bjindaho]

Yes. The higher earners pay the vast majority of tax, the whole "pay your fair share" stuff is a load of BS, higher earners already pay more than their fair share at a higher tax rate, they carry a majority of the tax burden that everyone else benefits from.

Yes, the fact that DJT paid less in federal income tax than a person who has to use food stamps to get groceries the year before he was elected President helps this claim amazingly.

The sheer dollar value of taxes paid is a misnomer to argue that at a certain dollar amount, the rich should be excused from taxes. For example, Elon Musk whined about having to pay close to 1B in taxes one year, which represented an effective tax rate under 5% for that year (in other words, he should have owed 20B+ if he were paying his fair share).

 

[Siludin]

They refused to accept a relative of mines deduction for his TTC transit pass because he didn't keep every single receipt from when he bought it monthly. He was a student at the time.

They hounded him for months about it, great use of resources I tell ya.

So they asked him to prove it and he couldn't? What exactly is the problem here? If I said I made a $400 charitable donation but kept no record of it, how does CRA know I'm telling the truth?

 

[David Suzuki]

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

If any high income earners in Canada wanna change places with a low income earner in Canada please DM me.

 

[Soundwave]

Yes, the fact that DJT paid less in federal income tax than a person who has to use food stamps to get groceries the year before he was elected President helps this claim amazingly.

The sheer dollar value of taxes paid is a misnomer to argue that at a certain dollar amount, the rich should be excused from taxes. For example, Elon Musk whined about having to pay close to 1B in taxes one year, which represented an effective tax rate under 5% for that year (in other words, he should have owed 20B+ if he were paying his fair share).

He paid 11 billion in federal tax in 2022, it's Tesla that paid 0 corporate tax by claiming losses (which is their right to do).

https://www.cnn.com/2022/02/10/investing/elon-musk-tesla-zero-tax-bill/index.html

That said, there's nothing stopping someone like him from simply going to a different country, then you lose that 11 billion to begin with (which means someone else has to pay it to make up for the loss) and then also probably several hundreds of jobs lost. And I don't even like Elon Musk.

Corporate tax rates have to be low because corporations are large enough they can easily move somewhere else, it's better to get some cut of that than nothing.

If you lose high income earners and drive them out of your country, guess who has to pay for the windfall left over? "Middle class" people. The "high earners" pay for a large majority of the services in Western countries.

 

[Figgy44]

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



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

CTV News

Good link. Thanks. But I don't like this because this has huge implications relating to regular LTI (Long term incentives)/signing bonuses and things like RSUs. The CRA is basically getting everyone to watch JT get nailed to the wall, while also pickpocket the everyman while they watch this spectacle unfold.

Long story short, I don't think the CRA is approaching this in good faith. I also have seen the CRA play legalese on many other instances in the work I do and I've dealt with more low income individuals being dragged through audits in the last 6 months than I've seen in all of my decades+ career. Many others with careers several times longer than mine are the same.

But don't take this for a rant of someone who just hates the government. I've defended the CRA for years to clients, but this year, I've told clients too many times that I didn't like the direction the CRA was headed. There's a reason why the taxpayer ombudsman has been involved with CRA complaints more than before. There's a reason why the whole bare trust fiasco thing from earlier this year (Articles stating the way CRA approached it wasted over a billion+ in taxpayer funds) is being reviewed by the taxpayer ombudsman for violating the taxpayer bill of rights.

I've said before if the CRA attacked this scenario based solely on the residency thing, I don't have an issue at all. That's how things have been done for decades. But this dicking around with legalese to reframe a situation... that's ridiculous.

 

[I Hate Blake Coleman]

They do.

They pay more in a single year than the average Joe pays in his entire life.

And they'll still have millions left after, while regular joes are living paycheque to paycheque while still paying taxes.

 

[Tanknation]

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

Does it really matter? At the end of the day Ceo's , politicians just increase their pay. Not like we common ppl like us see a dime back.