Canadian Revenue Agency ruling on signing bonuses

[Honour Over Glory]

It doesn't effect him as he doesn't reside in Germany. Canada, to my recollection, is one of if not the only country that allows for tie-breaking from their country. The US doesn't even allow it for its citizens.

Again, this is a VERY particular and exceptional issue that is occurring between Canada and Tavares. It has no effect on anyone else, except any Canadian who tie-breaks from Canada, to go and live and work in the US, and then returns to play for a Canadian-owned entity and receives a signing bonus.

I was under the impression that it did affect him as he lives in Canada and is a Canadian Tax Resident that also spends more than 183 days living in Canada and also because of this:

In Canada, you’re considered a resident for tax purposes if you spend 183 days of the year in the country, or if you have facts and circumstances that tie you to Canada. Residents are subject to tax in Canada on their worldwide income.

If you play for the Toronto Maple Leafs and are a Canadian resident for tax purposes then you will be taxed more than 53 percent on your worldwide income, including any bonus and salary. Playing for a Canadian team while a tax resident of Canada would make you exempt from federal tax (and most state tax) in the U.S.

So for players who are considered a U.S. person, that bonus is taxed in the state where they live. To stick with the Florida example, that means the player pays 37 percent on the bonus. But if he is a Canadian tax resident, he’ll pay approximately 53 percent. (Before the accountants hit the comment section, yes, this is a rough total before factoring in deductions, foreign exchange rates, or escrow).

‘Anywhere but Canada’: How a tax ruling could hobble pro teams north of the border

The ruling on John Tavares' signing bonus could have far-reaching implications for future pros contemplating a deal with a Canadian team.

www.nytimes.com

So my understanding is Leon Draisaitl in my example is a Canadian tax resident. Which means he'd be liable to 53% as well.

This theory of, say, the Panthers having a leg up because of a favorable tax situation may be true, but it doesn't capture all that the franchise and market have to offer - fantastic weather, minimal pressure from fans and media, and, most importantly, a championship-caliber ownership group, staff, and roster.

Nor does it recognize previous eras in which Florida wasn't a destination.

"You're in a business, not going to be making this kind of money for the rest of my life, you try and make as much as you can," said Sam Reinhart, who signed a team- and player-friendly eight-year, $69-million contract extension with the Panthers on July 1. "(There's many) things you balance. It just so happens that it's tax-free in one of the better places to play."

Predators forward Filip Forsberg added: "Every place certainly has its advantages, whether it's lifestyle, taxes is certainly a part of it, and at the end of the day, that does play quite a bit of difference in our salary. It's a fair point (about the notable disparity in tax rates). I'm not disagreeing with it. It's above my pay grade whether to decide if it's right or wrong."

At least one player, Senators forward Shane Pinto, would welcome a tweak.

"They have to overpay guys to come to Canada every time," he said. "That messes up the cap. So I think they do have to find a way try to even it out. I know it's not easy (to implement change) because it's been like that forever. But I think it'd be nice to have an even playing field for that."

Ducks defenseman Radko Gudas provided the most succinct analysis: "I don't think the NHL should be stepping into tax problems," he said. "If they want to change it, maybe we should change the playoff format, too."

Mega-star bar will keep rising, tax advantages, and 5 other NHL items

LAS VEGAS - Connor McDavid, the best hockey player of the salary-cap era, owned the highest salary-cap hit in the NHL for five seasons in his early 20s.Finally, in 2023-24, somebody surpassed McDavid's $12.5-million average annual value, as Nathan MacKinnon signed for an extra $100,000 a year...

www.thescore.com

So I think Draisaitl already pays that tax, its more or less Tavares that is fighting it because he was a US Citizen Tax Resident at the time of his contract and they tried to act like the signing bonus wasn't actual salary which is the part that if they think they're going to win, likely won't because it's a tactic most teams use to get these players signed and get them their money asap, but it's still considered a part of their cap hit and salary which is literally what they sign and proves it as such as well as their actual cap hit being affected by it, so that won't help Tavares' case either. I think the Draisaitl part was just me saying what is already being done, he does pay the tax bracket he's in, he'll finally make more but he'll also lose more.

And this article - https://www.thestar.com/sports/leaf...cle_fb1433ee-6c4d-11ef-8869-17f50be4ad86.html

As well as this - Comparing NHL Player Contracts

 

[SillyRabbit]

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

Am I crazy or did all Tavares have to do was to not include conditions on the bonus and the CRA would have no argument?

Sounds like his agent screwed up.

 

[Sol]

Man 50 percent tax on a 15 million dollar bonus. That’s robbery. Imagine paying around 8 million to the govt for doing nothing impressive. Absolute robbery.

 

[FerrisRox]

Man 50 percent tax on a 15 million dollar bonus. That’s robbery. Imagine paying around 8 million to the govt for doing nothing impressive. Absolute robbery.

Imagine being paid a $15 million dollar bonus just to sign another multimillion contract.

It's an extraordinary situation.

 

[Mattilaus]

Man 50 percent tax on a 15 million dollar bonus. That’s robbery. Imagine paying around 8 million to the govt for doing nothing impressive. Absolute robbery.

I know I wouldn't be able to sleep comfortably with only 7.5 million dollars a year. How does he even afford rent?

 

[Bruins4Lifer]

So my understanding is Leon Draisaitl in my example is a Canadian tax resident. Which means he'd be liable to 53% as well.

Top marginal rate in Alberta is a little lower at 48% I believe.

Also, I think quite a few NHLers that play in Canada but don't expect to live there in retirement have RCAs set up, which lowers their tax liability a bit more.

 

[Albatros]

A government should provide a basic social security net, decent health care, public education, some child care assistance, good roads, clean drinking water, adequate police and fire service, an ok senior's pension -- the basics. It shouldn't be a slush fund for every public spending fancy thought that pops into a government official's head. They should encourage business investment because having a wealthier tax base makes it easier to pay for these things.

If you want a certain quality of life beyond that then you can go work for it like anyone else. Plain and simple. You're not entitled to someone else's money past that threshold of basics.

You would then surely agree that also private property should enjoy only basic protection by the government.

 

[Pablo El Perro]

I'm curious how this affects say someone like Leon Draisaitl for example.

He's earning 15.5m in bonus with a 1m actual salary in his new deal (first 3yrs), that moist tax rate CRA wants is going to definitely be comical no? Because if they win against Tavares, then I mean...doesn't Leon get taxed the same for his even bigger singing bonus of 15.5m for the first 3 years? Does it have massive implications on say what someone like McDavid would want in his next deal to off set the massive tax hit he is going to have to answer to as well? Because the argument that the bonus isn't a bonus for Leon is valid, it's a salary structured to show as a bonus and that won't fly in court either if the CRA wins against Tavares, Leon is looking at a pretty rough income tax.

Gonna need more cap space to make everyone happy.

His tax rate would still be comparable to Germany. So, he should feel at home. And yeah, in Alberta it caps out at 48% marginal rate. Same as Germany.

 

[Pablo El Perro]

Am I crazy or did all Tavares have to do was to not include conditions on the bonus and the CRA would have no argument?

Sounds like his agent screwed up.

Pretty sure all teams include honoring the contract and playing for the team as a condition for signing bonuses being guaranteed/not have to be paid back. I could be wrong on this,but until proven otherwise assume Tavares and his team didn't have that kind of leverage.

 

[Sol]

I know I wouldn't be able to sleep comfortably with only 7.5 million dollars a year. How does he even afford rent?

Regardless of what you think, losing half of that money to taxes is legit crazy.

 

[Mattilaus]

Regardless of what you think, losing half of that money to taxes is legit crazy.

Regardless of what you think, no it isn't.

 

[Perfect_Drug]

This is incorrect as every individual files a separate return in Canada.

And if he already paid taxes in the USA, then he won't be required to pay them in Canada as there is a tax treaty between the two countries (basically what the entire case is about).

NOBODY should get taxed for their income by 2 different countries.

 

[Soundwave]

You would then surely agree that also private property should enjoy only basic protection by the government.

What would be the difference between "basic protection" vs "special fancy pants protection"? I don't think that entitles a government to then start taking like over 50% of a person's earned income and a huge cut of capital gains they did nothing for.

There's nothing magical about protecting private property, many, many countries do it fine.

There are countries that have a flat tax that protect private property, there are countries that have like a 10% income tax rate that protect private property as well.

 

[Sol]

Regardless of what you think, no it isn't.

It is.

 

[ItWasJustified]

How much money do you really need? NHL players seem to basically get any job in hockey they want after their playing careers are done, so it's not as he will be unemployed and has to live on his career savings. He can probably put money in a savings account and his whole family can live good on the interest rate.

Regardless of what you think, no it isn't.

You think that until you see what local and federal governments all over the world waste money on.

 

[KapG]

Man 50 percent tax on a 15 million dollar bonus. That’s robbery. Imagine paying around 8 million to the govt for doing nothing impressive. Absolute robbery.

Idk how people can defend this kind of taxation.

Regardless of what you think, no it isn't.

Yah we gotta make sure we can keep sending billions to Ukraine and millions to African countries telling them not to shit on the beach.

 

[Non Player Canadiens]

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.

i don't hate taxes. i like roads and such. it costs money to live in a society like the US & Canada.

you guys wanna see what no tax/no gvt looks like? please take a trip on down to any of your favorite developing world destinations ...

They do.

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

both those things can be true right?

It could be true that they pay more in a single year than the average Joe pays in his entire life, and that they're not paying their fair share according to the law.

 

[Alexei Yashvalev]

Hot take the USA was a cheaper place to live in in the 1960's when the top tax rate was 90% and taxes were generally much higher than now. You could buy a house on a single median income in a reasonable amount of time.

40 years of reaganomics hasn't improved affordability for shit. Things have gotten worse.

 

[ToDavid]

My preference is for the players on my favourite team not to look for loopholes to avoid paying their fair share of taxes. I have no problem losing out on FAs over this issue.

This doesn’t really have anything to do with loopholes. This is standard tax treatment for signing bonuses for any Canadian, whether it’s a couple thousand or a couple million.

The only thing at issue is that the CRA doesn’t think NHL signing bonuses meet their definition of a signing bonus, but rather are regular income.

 

[Chuck Norris Trophy]

As always, in these threads people post that f*** the CRA. As a North European who doesn't have not that deep knowledge on the subject, why? Is it just because you hate taxes? Or is there something else? Is it like a libertarian stance?

Sorry if this is too political.

 

[Based Anime Fan]

This doesn’t really have anything to do with loopholes. This is standard tax treatment for signing bonuses for any Canadian, whether it’s a couple thousand or a couple million.

The only thing at issue is that the CRA doesn’t think NHL signing bonuses meet their definition of a signing bonus, but rather are regular income.

The CRA has a good footing on thinking that NHL bonuses aren't real bonuses, too.

How many times do you see a contract announced that looks like "player signed for 8 years, 64 million for an 8 million AAV. They get a signing bonus of 13 mil every july 1st for 4 years. Their salary every year is 980k real dollars'? (Numbers dont line up but the spirit is the point)

That lump sum 'bonus' would in fact, by definition, not be a bonus but a lump sum payment of salary pre-paid. A bonus is is supposed to be additional bonus compensation, not deferral or redistribution of wages earned.

 

[Albatros]

What would be the difference between "basic protection" vs "special fancy pants protection"? I don't think that entitles a government to then start taking like over 50% of a person's earned income and a huge cut of capital gains they did nothing for.

There's nothing magical about protecting private property, many, many countries do it fine.

There are countries that have a flat tax that protect private property, there are countries that have like a 10% income tax rate that protect private property as well.

If someone for example attempts to occupy your privately owned land or take possession of your motor vehicle, why should government resources be wasted addressing the issue when you're the only immediate beneficiary and can purchase the protection services you require from private providers?

Or is it simply that this form of social security is suddenly fine and necessary when it happens to align with your own interests?

 

[boompuffboom]

experts. i see experts everywhere.

 

[Perfect_Drug]

This doesn’t really have anything to do with loopholes. This is standard tax treatment for signing bonuses for any Canadian, whether it’s a couple thousand or a couple million.

The only thing at issue is that the CRA doesn’t think NHL signing bonuses meet their definition of a signing bonus, but rather are regular income.

He stated pretty clearly the tax treaty issue.

He was a resident of the USA at the time and paid the US income tax.

The Canadian government is trying to swoop in and trying to double-tax it.

I have to deal with the CRA being incompetant all the time. I spent 3 hours on the phone with them on Friday. 99% of the people who work there have no idea how non- Canadian taxes work.

 

[Perfect_Drug]

It doesn't help that the news reporting it isn't news.


News isn't supposed to ask Tavares what he thinks is correct and then ask the CRA rep what they think is correct.

The news needs to report: "The CRA is wrong in trying to double tax Tavares".