Canadian Revenue Agency ruling on signing bonuses

[Toby91ca]

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?

So, I've actually had the CRA send me a letter one year on my bonus....which was a bit stupid. I received a normal annual bonus. I can't remember the question they were asking because it was dumb either way, it was simply income, not taxed any differently than salary....just add it on top of my salary and then work through the various tax brackets.

Tavares situation is different, it's a signing bonus, so like an incentive and tax cuts are given as it's a way to bring talent back into the country, etc. However, this has nothing to do with the actual law here, but if it was me, what would make sense is that you are trying induce someone to sign a contract with you.....the general market rate for their services is $500,000 per year, so I agree, I'm going to offer that person $500,000 per year and that will be taxed accordingly, but what sweetener can I give to convince that person to come? I'll offer a signing bonus, one time thing to convince that person to join.....gov't will agree to tax that differently because there are offsetting benefits of having that person come. Seems to make sense to me. But JT's scenario, and others, make no sense to me. His salary is basically $800K per year, $6M total and then the signing bonus is $71M. That clearly makes no sense, it's clearly structured that way to try to avoid tax....but I'd argue that a good portion of that $71M should clearly be considered salary for services rendered as the $800K is clearly not the market salary. Again, I'm not suggesting there is a law that says you determine market, etc. but that seems to make sense to me.

 

[Soundwave]

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

Yes but you get a benefit from that at least in the way of a lot of your social services are paid for by them (health care, child care, public education, social security nets, roads, other social programs, etc.).

 

[Crow]

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

What do you mean - good luck? You think John Tavares of all people is somehow above their authority?

 

[I Hate Blake Coleman]

Yes but you get a benefit from that at least in the way of a lot of your social services are paid for by them (health care, child care, public education, social security nets, roads, other social programs, etc.).

Poor people pay for those too.

 

[Bjindaho]

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.

You need to stop gaslighting.

Elon Musk claimed that he "owed" 11 billion but there are no articles since that actually say what he had to pay or how he paid it. He does not have anywhere near that kind of cash, which means that he likely paid none of it (and shell-gamed the tax implications).

 

[Gaylord Q Tinkledink]

I want millionaires to pay, too, but how about you go after the useless politicians and just pay them less and use that money to spend irresponsibly ?

 

[Soundwave]

You need to stop gaslighting.

Elon Musk claimed that he "owed" 11 billion but there are no articles since that actually say what he had to pay or how he paid it. He does not have anywhere near that kind of cash, which means that he likely paid none of it (and shell-gamed the tax implications).

You don't have any proof of that. The fact is high income people pay the majority of tax in the US and Canada.

You remove them by driving them out of the country and where are you going to make up for that 50+% loss in tax revenue?

People making like 50k a year don't drive massive tax revenue it comes from people with a lot more money.

Wealthy people do pay "their fair share" they pay the majority of the tax the government has to then spend with, if they didn't you would have no where near the same level of public services.

 

[Bjindaho]

You don't have any proof of that. The fact is high income people pay the majority of tax in the US and Canada.

You remove them by driving them out of the country and where are you going to make up for that 50+% loss in tax revenue?

People making like 50k a year don't drive massive tax revenue it comes from people with a lot more money.

You've made a claim with no support.

I can absolutely prove that Elon Musk did not pay his tax bill. He does not have 11B dollar and most of his assets are vested because of loans.

You cannot prove your claim because it is false.

 

[David Suzuki]

Empathy means loving all of your neighbours, rich, poor, and equal alike

That is quite literally not what empathy means haha

 

[Soundwave]

You've made a claim with no support.

I can absolutely prove that Elon Musk did not pay his tax bill. He does not have 11B dollar and most of his assets are vested because of loans.

You cannot prove your claim because it is false.

It's actually in the article I linked to:

In total, he spent $142.6 million to purchase shares worth $23.6 billion, giving him $23.5 billion in in taxable income, taxable for 2021 at a federal rate of about 41%.


Musk also sold a small fraction of the additional shares he already owned, sales that fetched a taxable $5.8 billion at a lower capital gains rate.


Together those stock trades likely resulted in roughly an $11 billion federal tax bill, which he has tweeted about.

He paid tax on stock he personally sold (at a profit).

 

[Bjindaho]

It's actually in the article I linked to:

In total, he spent $142.6 million to purchase shares worth $23.6 billion, giving him $23.5 billion in in taxable income, taxable for 2021 at a federal rate of about 41%.


Musk also sold a small fraction of the additional shares he already owned, sales that fetched a taxable $5.8 billion at a lower capital gains rate.


Together those stock trades likely resulted in roughly an $11 billion federal tax bill, which he has tweeted about.

He paid tax on stock he personally sold (at a profit).

No, he didn't.

He claimed to owe $11B in tax. At no point, has Elon Musk nor anyone else in the world tweeted out that he paid any of that tax bill.

On top of that, he didn't actually spend a penny of his own money to acquire those shares either. He took out a loan to acquire them, then likely transferred 142.6M in present day share value to cover the loan.

 

[notbias]

No, he didn't.

He claimed to owe $11B in tax. At no point, has Elon Musk nor anyone else in the world tweeted out that he paid any of that tax bill.

On top of that, he didn't actually spend a penny of his own money to acquire those shares either. He took out a loan to acquire them, then likely transferred 142.6M in present day share value to cover the loan.

The IRS is notorious for allowing people to skip out on taxes.....................

Having wealth gives you access to more wealth, this is not groundbreaking.

Loans are more accessible for people who can cover the loan, shocking.

 

[Soundwave]

No, he didn't.

He claimed to owe $11B in tax. At no point, has Elon Musk nor anyone else in the world tweeted out that he paid any of that tax bill.

On top of that, he didn't actually spend a penny of his own money to acquire those shares either. He took out a loan to acquire them, then likely transferred 142.6M in present day share value to cover the loan.

Once you sell a stock, you're paying tax on it, there is no magic "hide behind a tree", the IRS will come after that, it's black and white.

In either case, the US is free to hound him if they want for more tax revenue, if he chooses to go to some other country and take his company with him, then what? You now have $0 in tax revenue and you have probably several thousand people who are now unemployed.

So, bravo I guess in that scenario.

Again, the US and Canada wouldn't function just by taxing $50k/year earners. They need to have the higher income earners to pay for the wealth of massive social services they offer. The "middle class" can't afford to pay for that.

 

[ManofSteel55]

Just pay your f***ing taxes, Johnny Boy. What an entitled little shit.

Should've learned from Irwin R. Schyster.

 

[Figgy44]

So, I've actually had the CRA send me a letter one year on my bonus....which was a bit stupid. I received a normal annual bonus. I can't remember the question they were asking because it was dumb either way, it was simply income, not taxed any differently than salary....just add it on top of my salary and then work through the various tax brackets.

Tavares situation is different, it's a signing bonus, so like an incentive and tax cuts are given as it's a way to bring talent back into the country, etc. However, this has nothing to do with the actual law here, but if it was me, what would make sense is that you are trying induce someone to sign a contract with you.....the general market rate for their services is $500,000 per year, so I agree, I'm going to offer that person $500,000 per year and that will be taxed accordingly, but what sweetener can I give to convince that person to come? I'll offer a signing bonus, one time thing to convince that person to join.....gov't will agree to tax that differently because there are offsetting benefits of having that person come. Seems to make sense to me. But JT's scenario, and others, make no sense to me. His salary is basically $800K per year, $6M total and then the signing bonus is $71M. That clearly makes no sense, it's clearly structured that way to try to avoid tax....but I'd argue that a good portion of that $71M should clearly be considered salary for services rendered as the $800K is clearly not the market salary. Again, I'm not suggesting there is a law that says you determine market, etc. but that seems to make sense to me.

That's a fair approach. A percentage of the signing bonus could be considered upfront salary due to the fact the majority of the total compensation is structured in this manner. I do believe it's not intentional as a tax avoidance by the JT because many other players have contracts structured this way. But most of what I've read doesn't point in a direction that hints the CRA is going in this direction. I don't have an issue with the CRA wanting to seal these types of things off.

But everything I've read so far points at an end result where the case law will leave behind a net so wide, it'll start to capture people that are doing things in a reasonable manner, like them questioning your bonus. That's the part that pisses me off about the JT scenario. It's that it'll have a trickle down effect from a case law effect to hit a lot of people that have situations that aren't remotely close to being as unique as JT's scenario. Honestly speaking, I literally deal with it already and I already see it. I don't have an issue with the CRA going after JT. I just have a serious issue in the way they're doing it.

 

[MCR74]

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.

This.

Stay tuned for the appeal.

 

[ManofSteel55]

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

But the argument, from what I understand, is that it was a bonus signed for work he was going to do in Canada. I'm no tax law expert, so I don't know what is "right" according to the tax code, but I would argue that if his bonus is for work being done in Canada, and he is going to move to Canada to do that work, it makes sense that it should be taxable under Canadian income tax. That said, I understand your point as well. I'm glad I'm not a tax professional.

 

[TheOrangeDesk]

f*** the CRA

Found the moron

 

[hangman005]

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

How much of someone else money is "fair" share. The government should go out and get a job like the rest of us and stop extorting it's citizens.

 

[sportsvg]

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.

Sorry but that is complete bull#$%^, the tax laws could be changed to have ultra wealthy/corporations pay more, there is just no political will to make it happen. This would be more difficult in Canada but the US could easily do it. They can seize a russian billionaires yacht on the other side of the world, I'm sure they can make Coca Cola pay more income tax they just don't want to and anyone who talks about it or campaigns on it gets no support and has no chance of getting elected. They literally make the rules that are being used to get out of paying the taxes, hire some of these super smart accountants, pay them a ton fix the rules and you'd get 10 dollars back for every dollar you spent.

 

[Three On Zero]

How much of someone else money is "fair" share. The government should go out and get a job like the rest of us and stop extorting it's citizens.

They have a job, it’s taking our money and giving back the bare minimum.

 

[Soundwave]

How much of someone else money is "fair" share. The government should go out and get a job like the rest of us and stop extorting it's citizens.

Should be capped at 49% max (prov + federal total) and ideally a bit less for the highest bracket. Any person should be entitled to keep at least half of their income that they worked for or generated.

Capital gains should go back to a simple 50% taxable amount on the gain at a max rate of 49%.

If that isn't enough tax revenue to pay for all the shit you're spending on as a government, then take a good, hard look at what you're spending and re prioritize on the fundamentals that people need (health care, education, roads, etc.), and not having a piggy bank for every random want and desire.

 

[absolute garbage]

I'm sure Tavares would be a lot happier to contribute his tax dollars if they enriched his life, or if he actually had confidence that his tax dollars were helping the Canadian state function. An ArriveCan scandal isn't really a big deal, just a drop in the bucket really and governments are run by fallible humans, it's that we're taxing ourselves into the ground and yet have failing healthcare systems, a military in absolute shambles, rising crime and falling public trust, and as a nation we spend hundreds of millions of dollars on evangelizing feminism in the Middle East. Or pouring tens of billions annually into Indigenous projects that somehow accomplish very little to improve the lives of our Indigenous people.

Taxes are essential for the functioning of a state. We need roads, public education, Canadians are (or were) proud of public health care, and societal safety nets. A military to protect our domestic sovereignty and to project power abroad (soft power needs to be backed up by hard power). Plus some more to handle the various bureaucracies that help a nation of tens of millions function with a semblance of smoothness. All that costs money and people need to pony up, which the rich overwhelmingly do, but people also deserve to get good results from their taxes.

The rhetoric about "the rich need to pay their share" is deeply, deeply toxic, because the simple fact is that they contribute massively, and that their dollars do actually entitle them to some expectations that their money is being spent properly. Canada has been drunk on tax and spend for years and years now, and what are we actually getting for it?

Squeezing millionaires and billionaires for more money would be virtuous if the nation was starving, or the nation faced an existential threat of an enemy. But we don't have that, we just have a lot of people with their hands out. Canada must have the courage to ask itself what value it is providing to its citizens for their money, and remember that the rich are entitled to a fair social contract like the rest of us.

What a horseshit of a post, but that bolded takes the cake.

Bro Canada is not a sovereign country. Really it's not even independent. In the history of vassal states there's rarely been a bigger vassal than modern day Canada. In fact I think everyone should just stop pretending already and the US to officially annex Canada to get rid of that stupid arbitrary border. Would make it much easier for everyone.

 

[SupremeTeam16]

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.

Clearly there’s been a big push for more revenue to help cover inflated spending. I just wonder if in the long run it hurts more then it helps by driving income and Investment away. If high earning atheletes are concerned about having to fight off the CRA in the margins then it’s just another disincentive to signing in Canada. The whole point of the article related to bonuses is to ensure Canada can be competitive and attract these types of earners. If athletes cant trust that they won’t be at risk they will be less likely to sign and over the long term that likely results in less money being taxed and spent in Canada.

 

[Soundwave]

Sorry but that is complete bull#$%^, the tax laws could be changed to have ultra wealthy/corporations pay more, there is just no political will to make it happen. This would be more difficult in Canada but the US could easily do it. They can seize a russian billionaires yacht on the other side of the world, I'm sure they can make Coca Cola pay more income tax they just don't want to and anyone who talks about it or campaigns on it gets no support and has no chance of getting elected. They literally make the rules that are being used to get out of paying the taxes, hire some of these super smart accountants, pay them a ton fix the rules and you'd get 10 dollars back for every dollar you spent.

Coca-Cola can go HQ their company in many other places, they don't have to be in the US. They already have offices and plants in like 100 other countries. It's not like 1935 or even 1985 anymore.