Let’s even the playing field…after tax payroll cap

[zar]

I find that very hard to believe. If that’s accurate it gives Canadian teams a tremendous advantage in terms of taxation as long as they can afford to pay in signing bonuses rather than salary. The players would just have to establish US residency and pay significantly less taxes than they would playing for a team in the US.

The interpretation provided is not accurate. There is no such thing as non taxable income or income taxable at 15% … if that were the case the US players would be flocking to play in Canada… we know it to be quite the opposite.

 

[Golden_Jet]

I find that very hard to believe. If that’s accurate it gives Canadian teams a tremendous advantage in terms of taxation as long as they can afford to pay in signing bonuses rather than salary. The players would just have to establish US residency and pay significantly less taxes than they would playing for a team in the US.

You didn’t believe me first time , hopefully this time, and yes gives the Leafs a huge advantage, as there top paid players all got it.
I’m not sure if it’s residency or place of birth tbh.

 

[Golden_Jet]

The interpretation provided is not accurate. There is no such thing as non taxable income or income taxable at 15% … if that were the case the US players would be flocking to play in Canada… we know it to be quite the opposite.

Did you read tis thread , or the hundreds others that come up about taxation, read post 162, said poster, and mouser, myself and others have provided links. Insider posted a more detailed one, not sure which thread.
The Canadian taxation law is linked right there, I assume you didn’t read or click it then.
Not flocking because only the Leafs pay 95% of salary in signing bonuses, yet they complain the most about no tax states. Key word being signing bonus.

 

[WeatherBeaten]

You didn’t believe me first time , hopefully this time, and yes gives the Leafs a huge advantage, as there top paid players all got it.
I’m not sure if it’s residency or place of birth tbh.

I think you’re misunderstanding the law.

 

[Golden_Jet]

I think you’re misunderstanding the law.

Ok I’m done, as it’s been beaten to death, also read up on RCA’s if players want to go that route, there are several routes, and I’m not rehashing them all

From hockey insider, also inside this thread
This topic again. To quote myself from an old thread:

After-tax income is much more difficult to quantify than many people think. A partial (but incomplete) list of factors that need to be taken into account:

• Marginal vs average tax rate - All NHL players would face the highest marginal tax rate on their remuneration, but their effective tax rate would always be lower due to the fact their income passes through the lower tax brackets first. So we couldn't calculate a general after-tax salary cap at the team level - it would have to be calculated separately for every player.
• Legal residency - It's possible for a player to live in Canada but be a resident, for tax purposes, of the US (or vice versa). Thus, a player might be employed by an American team, but would be a resident of Canada. Effectively, that player would be paying tax at the Canadian rate, despite playing for a US team.
• Signing bonus - The above point is further complicated by signing bonuses. There are specific provisions in the Canada/US tax treaty that effectively limit signing bonuses, paid by Canadian teams, to be taxed at that individual's US combined federal/state rate. So a Canadian team can pay a huge signing bonus to an American resident without any disadvantage from a tax perspective (Auston Matthews is a good example).
• Deductions - In general, US taxpayers can deduct agent fees, while Canadian players can't. Should this be taken into account? Why or why not? Similarly, Canadian residents can establish and RCA, which can provide significant tax benefits if used properly. Should that be taken into account? Who makes these decisions?
• Jock taxes - Several jurisdictions tax athletes on a pro-rated portion of their income based on when games are played - so you'd need to take the schedule into account, for every player, to get an accurate estimate of their after-tax income.

A comprehensive list of factors that need to be considered would be much longer. But even these points should indicate that calculating an after-tax salary cap would be a convoluted ordeal, and it would have to be constantly updated as facts change. The league would probably have to pay lawyers or accountants several hundred thousand dollars to do this.

From the owners' perspective, the value of this information isn't worth the cost - so taxes remain one of numerous inequalities between cities including cost of living, endorsement opportunities, climate, nightlife, etc.

Article XVI of the Canada-US tax treaty

See this article for a good (non technical) explanation: Auston Matthews Shoots and Scores Tax Savings | Crowe Soberman LLP

The article estimates that over the course of Matthews' contract, due to how his remuneration has been structured, he'll save around $13M. This is another example of how determining someone's after-tax compensation is much more complicated than simply applying the average rate for a given state or province. Matthews plays in Toronto, but effectively is paying tax at the Arizona rate on the vast majority of his earnings.

(Lest anyone think I'm criticizing him, good for Matthews for being smart enough to get good tax advice).

 

[WeatherBeaten]

Ok I’m done, as it’s been beaten to death, also read up on RCA’s if players want to go that route, there are several routes, and I’m not rehashing them all

From hockey insider, also inside this thread
This topic again. To quote myself from an old thread:

After-tax income is much more difficult to quantify than many people think. A partial (but incomplete) list of factors that need to be taken into account:

• Marginal vs average tax rate - All NHL players would face the highest marginal tax rate on their remuneration, but their effective tax rate would always be lower due to the fact their income passes through the lower tax brackets first. So we couldn't calculate a general after-tax salary cap at the team level - it would have to be calculated separately for every player.
• Legal residency - It's possible for a player to live in Canada but be a resident, for tax purposes, of the US (or vice versa). Thus, a player might be employed by an American team, but would be a resident of Canada. Effectively, that player would be paying tax at the Canadian rate, despite playing for a US team.
• Signing bonus - The above point is further complicated by signing bonuses. There are specific provisions in the Canada/US tax treaty that effectively limit signing bonuses, paid by Canadian teams, to be taxed at that individual's US combined federal/state rate. So a Canadian team can pay a huge signing bonus to an American resident without any disadvantage from a tax perspective (Auston Matthews is a good example).
• Deductions - In general, US taxpayers can deduct agent fees, while Canadian players can't. Should this be taken into account? Why or why not? Similarly, Canadian residents can establish and RCA, which can provide significant tax benefits if used properly. Should that be taken into account? Who makes these decisions?
• Jock taxes - Several jurisdictions tax athletes on a pro-rated portion of their income based on when games are played - so you'd need to take the schedule into account, for every player, to get an accurate estimate of their after-tax income.

A comprehensive list of factors that need to be considered would be much longer. But even these points should indicate that calculating an after-tax salary cap would be a convoluted ordeal, and it would have to be constantly updated as facts change. The league would probably have to pay lawyers or accountants several hundred thousand dollars to do this.

From the owners' perspective, the value of this information isn't worth the cost - so taxes remain one of numerous inequalities between cities including cost of living, endorsement opportunities, climate, nightlife, etc.

Article XVI of the Canada-US tax treaty

See this article for a good (non technical) explanation: Auston Matthews Shoots and Scores Tax Savings | Crowe Soberman LLP

The article estimates that over the course of Matthews' contract, due to how his remuneration has been structured, he'll save around $13M. This is another example of how determining someone's after-tax compensation is much more complicated than simply applying the average rate for a given state or province. Matthews plays in Toronto, but effectively is paying tax at the Arizona rate on the vast majority of his earnings.

(Lest anyone think I'm criticizing him, good for Matthews for being smart enough to get good tax advice).

I’m not arguing that the salary cap should be adjusted for taxes. I think that’s a horrible idea. Actually I’m not arguing anything. I’m simply stating that the US Canada tax treaty isn’t allowing Matthews to pay only 15% in taxes. I don’t think that’s accurate and it’s not what the article says.

 

[AnCatDubh]

Did you read tis thread , or the hundreds others that come up about taxation, read post 162, said poster, and mouser, myself and others have provided links. Insider posted a more detailed one, not sure which thread.
The Canadian taxation law is linked right there, I assume you didn’t read or click it then.
Not flocking because only the Leafs pay 95% of salary in signing bonuses, yet they complain the most about no tax states. Key word being signing bonus.

Matthews bonus is still taxable in Arizona. It’s not a 15% total tax rate. The 15% is just what the Canadian government gets

 

[Steerpike]

What if the league stops paying players and coincidentally all of the players become partial owners of a wildly successful laundromat in Miami?

 

[BLONG7]

LA won two Cups this past decade and California has basically the highest taxes in the States. And higher taxes than Alberta (maybe other provinces too).

Low income tax isn't why Tampa could draft Kucherov and Vasilevsky "late" and have them turn into superstars.

There may be some slight advantages for those teams in their states but as you say the Bolts have an amazing draft and develop record.

 

[I am toxic]

Players are paid in USD, so factor that in too as a pro for players playing in Canadian markets.

Someone making 1mil walks away with 1.28 CAD.

Tax loopholes, charity etc. Thered ways to minimize the discrepancy.

Also, I believe when Tampa plays in OTT, MTL, TOR, they get taxed by the canadian tax code.

There is a slight difference but not as big as people make it out to be. I think weather and media and quality of life play more of a role. The States are just a better place to live if you're rich.

The states with no state income taxes are an even better place to live if you're rich.

 

[barbu]

I understand that fans of canadian teams are disgruntled. I am. But taxes are only one part of the environment, along with shitty weather and wives that would rather live in a glamorous place. That and shitty management. And meddling or dysfunctional owners. And rabid bipolar fanbases.

The last canadian team that had a solid management group for any length of time was the Ottawa Senators from the late 90s until 2007

 

[Sabresruletheschool]

Considering the number of teams in the US that are litterally kept alive by canadian contributions to the NHL vault, the least you can do is have the discussion. Seems like a decent chuck of US fans cherry pick when capitalism actually applies for them.

There is a team that could win a 3rd stanley cup in a row that struggles to post a net operating income. Let that sink in.

You could say the same about this thread with a more socialist government. When you can't beat capitalism, force them right?

 

[WarriorofTime]

THE HOFF probably doesn't even realize that all Canadian other teams other than Toronto and Montreal would have folded in the 1990s without the NHL welfare he loves to rant about.

 

[LaCarriere]

I understand that fans of canadian teams are disgruntled. I am. But taxes are only one part of the environment, along with shitty weather and wives that would rather live in a glamorous place. That and shitty management. And meddling or dysfunctional owners. And rabid bipolar fanbases.

The last canadian team that had a solid management group for any length of time was the Ottawa Senators from the late 90s until 2007

Exactly.

As I said earlier, since 1994 (28 years), canadian teams have made the finals 6 times (21.4%), and lost every time. When you consider canadian teams have made up about 20-25% of the league over that time (can't calculate a flat percent because of all the new expansion american teams and Jets), it's not like they haven't had reasonable representation based on the number of teams over that time frame. They've just blown it every time.

If the reverse happened, and the canadian teams were 6-0, nobody would be complaining about taxes. People would be celebrating how successful canadian teams are, despite making up a quarter of the league. If they even won half those series people wouldn't care about taxes.

 

[Chadstudsky]

What an ignorant comment lol...the cost of living in 5 out of our 7 cities is far higher than any of the cities in OP. Not sure about the costs of living in Winnipeg and Edmonton but it might also be higher.

Ignorant, ok. I get that average cost of living is higher in Canada. But a quick google search showed me that real estate for my team (montreal) for the median house is lower than many US cities even before conversion. That's likely to be one's highest expense on a standard contract.

 

[I Hate Blake Coleman]

This is so f***ing dumb lmao

Why complicate an already complicated framework

 

[Ducati Boy]

I think it’s pretty clear that the lack of a state tax (often written as if there is no tax in Florida at all) directly causes Tampa to draft and develop good players who buy in to the system and excel as a team.

there's no other possible way to explain it.

 

[mouser]

Ok I’m done, as it’s been beaten to death, also read up on RCA’s if players want to go that route, there are several routes, and I’m not rehashing them all

From hockey insider, also inside this thread
This topic again. To quote myself from an old thread:

After-tax income is much more difficult to quantify than many people think. A partial (but incomplete) list of factors that need to be taken into account:

• Marginal vs average tax rate - All NHL players would face the highest marginal tax rate on their remuneration, but their effective tax rate would always be lower due to the fact their income passes through the lower tax brackets first. So we couldn't calculate a general after-tax salary cap at the team level - it would have to be calculated separately for every player.
• Legal residency - It's possible for a player to live in Canada but be a resident, for tax purposes, of the US (or vice versa). Thus, a player might be employed by an American team, but would be a resident of Canada. Effectively, that player would be paying tax at the Canadian rate, despite playing for a US team.
• Signing bonus - The above point is further complicated by signing bonuses. There are specific provisions in the Canada/US tax treaty that effectively limit signing bonuses, paid by Canadian teams, to be taxed at that individual's US combined federal/state rate. So a Canadian team can pay a huge signing bonus to an American resident without any disadvantage from a tax perspective (Auston Matthews is a good example).
• Deductions - In general, US taxpayers can deduct agent fees, while Canadian players can't. Should this be taken into account? Why or why not? Similarly, Canadian residents can establish and RCA, which can provide significant tax benefits if used properly. Should that be taken into account? Who makes these decisions?
• Jock taxes - Several jurisdictions tax athletes on a pro-rated portion of their income based on when games are played - so you'd need to take the schedule into account, for every player, to get an accurate estimate of their after-tax income.

A comprehensive list of factors that need to be considered would be much longer. But even these points should indicate that calculating an after-tax salary cap would be a convoluted ordeal, and it would have to be constantly updated as facts change. The league would probably have to pay lawyers or accountants several hundred thousand dollars to do this.

From the owners' perspective, the value of this information isn't worth the cost - so taxes remain one of numerous inequalities between cities including cost of living, endorsement opportunities, climate, nightlife, etc.

Article XVI of the Canada-US tax treaty

See this article for a good (non technical) explanation: Auston Matthews Shoots and Scores Tax Savings | Crowe Soberman LLP

The article estimates that over the course of Matthews' contract, due to how his remuneration has been structured, he'll save around $13M. This is another example of how determining someone's after-tax compensation is much more complicated than simply applying the average rate for a given state or province. Matthews plays in Toronto, but effectively is paying tax at the Arizona rate on the vast majority of his earnings.

(Lest anyone think I'm criticizing him, good for Matthews for being smart enough to get good tax advice).

Re-read the article carefully.

It says Canada would collect $13m less in taxes without the signing bonuses.

That doesn’t mean Matthews would save $13m in taxes. Matthews still has to pay his lower rate USA taxes after adjustment for the tax treaty between Canada and the US.

 

[Hockey Outsider]

The interpretation provided is not accurate. There is no such thing as non taxable income or income taxable at 15% … if that were the case the US players would be flocking to play in Canada… we know it to be quite the opposite.

That statement (bonuses are taxed at 15%) is correct, but incomplete. I'll explain (with some simplifications). Essentially, when an athlete who's a US resident (for tax purposes) plays in Canada, and receives a signing bonus, Article XVI of the Canada/US tax treaty caps the amount of tax that must be paid to the Canadian tax authority (CRA) at 15%.

But that's only part of the story. The bonus would then be taxed at the athlete's marginal taxes rates, based on whatever state he resides in, above and beyond that 15%. Sticking with the example in the article, Matthews would be paying tax at a marginal rate of about 41% (US federal and Arizona state tax). The end effect is Canada's CRA taxes the bonus up to the 15%, and the IRS and Arizona state get the remainder, up to around 41%. (To be clear, this analysis applies to the signing bonus only).

Given that the highest marginal tax rate in Ontario is 53.53%, Matthews saved a huge amount of tax by structuring his contract this way. At the risk of oversimplifying, he dropped his tax rate by around 10% by receiving most of his compensation in the form of a signing bonus. (And, once again, this isn't a criticism of Matthews - he was smart to get good tax advice).

Why don't more players do this? It's only applicable in certain situations. An incomplete list of factors that would go into this:

• The player needs to be a US resident (for tax purposes) - that's why Matthews was able to do this, but Marner couldn't. (Granted, Marner also got a huge signing bonus, which is good for him from a cash flow standpoint - but he wouldn't get any of the tax benefits that Matthews did).
• There needs to be a material difference between the marginal rates in different jurisdictions. Comparing Ontario to Arizona? That's a big difference. Comparing Alberta (Calgary and Edmonton) to New York state (and especially NYC, which also has a city tax)? The difference is small (and in fact a player in Alberta currently might be facing a lower marginal rate than a player in NYC).
• Signing bonuses are required to be paid out in the summer, before the season starts. This requires the team to have the cash upfront (salary is paid steadily throughout the regular season). Even if a GM wants to help a player reduce their tax bill through this strategy, the team has to have good cash flow in order to be able to make this work (not a problem for the Leafs - but maybe not realistic for, say, Winnipeg).
• In order to maintain their status as a US resident, the athlete would need to, among other things, avoid having a permanent residence in Toronto (the best approach would be to rent a place for eight or nine months at a time) and maintain a permanent residence in Arizona (ie own a home and live there in the off-season, or at least rent a place indefinitely). Obviously, there are financial costs to do this, and for a player making "only" a million or two dollars a year, these costs could easily negate the tax savings.
• You can't force a client to make a good decision. "Penny wise, pound foolish" is a good way to put it. It takes time for lawyers or accountants to do this type of analysis, and that costs money. Some players might not be willing to spend $10K for tax planning, even if it saves them $100K, because they don't understand the issue, or they have cash flow issues themselves.

So this strategy only works if certain factors line up. But when they do (as in the case of Matthews), they can save the player millions of dollars in income taxes.

(EDIT: my qualifications on this topic, as far as anyone reading this post is concerned, is "some guy on the internet").

 

[The Crypto Guy]

I mean truthfully this should be done. I thought the NHL was all about fairness between teams? Best part is the fans of the poor teams in low tax areas, who all wanted a cap, are soo against this because they lose their advantage.

The Florida Panthers have been in the league for 28 years:

20 of those years they didn't make the playoffs.
6 of those years they didn't make it out of the first round.
1 time in those 28 years they made it to the Finals, in 1996.


Obviously the lack of state tax is giving them an unfair advantage.

And the Rangers stunk without the salary cap even though they spent the most money, what's your point?

 

[zar]

That statement (bonuses are taxed at 15%) is correct, but incomplete. I'll explain (with some simplifications). Essentially, when an athlete who's a US resident (for tax purposes) plays in Canada, and receives a signing bonus, Article XVI of the Canada/US tax treaty caps the amount of tax that must be paid to the Canadian tax authority (CRA) at 15%.

But that's only part of the story. The bonus would then be taxed at the athlete's marginal taxes rates, based on whatever state he resides in, above and beyond that 15%. Sticking with the example in the article, Matthews would be paying tax at a marginal rate of about 41% (US federal and Arizona state tax). The end effect is Canada's CRA taxes the bonus up to the 15%, and the IRS and Arizona state get the remainder, up to around 41%. (To be clear, this analysis applies to the signing bonus only).

Given that the highest marginal tax rate in Ontario is 53.53%, Matthews saved a huge amount of tax by structuring his contract this way. At the risk of oversimplifying, he dropped his tax rate by around 10% by receiving most of his compensation in the form of a signing bonus. (And, once again, this isn't a criticism of Matthews - he was smart to get good tax advice).

Why don't more players do this? It's only applicable in certain situations. An incomplete list of factors that would go into this:

• The player needs to be a US resident (for tax purposes) - that's why Matthews was able to do this, but Marner couldn't. (Granted, Marner also got a huge signing bonus, which is good for him from a cash flow standpoint - but he wouldn't get any of the tax benefits that Matthews did).
• There needs to be a material difference between the marginal rates in different jurisdictions. Comparing Ontario to Arizona? That's a big difference. Comparing Alberta (Calgary and Edmonton) to New York state (and especially NYC, which also has a city tax)? The difference is small (and in fact a player in Alberta currently might be facing a lower marginal rate than a player in NYC).
• Signing bonuses are required to be paid out in the summer, before the season starts. This requires the team to have the cash upfront (salary is paid steadily throughout the regular season). Even if a GM wants to help a player reduce their tax bill through this strategy, the team has to have good cash flow in order to be able to make this work (not a problem for the Leafs - but maybe not realistic for, say, Winnipeg).
• You can't force a client to make a good decision. "Penny wise, pound foolish" is a good way to put it. It takes time for lawyers or accountants to do this type of analysis, and that costs money. Some players might not be willing to spend $10K for tax planning, even if it saves them $100K, because they don't understand the issue, or they have cash flow issues themselves.

So this strategy only works if certain factors line up. But when they do (as in the case of Matthews), they can save the player millions of dollars in income taxes.

(EDIT: my qualifications on this topic, as far as anyone reading this post is concerned, is "some guy on the internet").

Thanks for your time on a much more detailed and logical explanation.. this is the way I understood it as well. This makes much more sense and is obviously someone limited in it's advantages due to residency law restrictions.

Cheers.

 

[barbu]

Exactly.

As I said earlier, since 1994 (28 years), canadian teams have made the finals 6 times (21.4%), and lost every time. When you consider canadian teams have made up about 20-25% of the league over that time (can't calculate a flat percent because of all the new expansion american teams and Jets), it's not like they haven't had reasonable representation based on the number of teams over that time frame. They've just blown it every time.

If the reverse happened, and the canadian teams were 6-0, nobody would be complaining about taxes. People would be celebrating how successful canadian teams are, despite making up a quarter of the league. If they even won half those series people wouldn't care about taxes.

Actually in 28 years that's 56 teams in the finals, so canadian representation is half of what is statistically expected and the win rate immensely lower. But given that apart from the Ottawa senators from a short period no canadian teams were a consistent contender, that's not particularly unexpected.

 

[ottawa]

Ignorant, ok. I get that average cost of living is higher in Canada. But a quick google search showed me that real estate for my team (montreal) for the median house is lower than many US cities even before conversion. That's likely to be one's highest expense on a standard contract.

Montreal is just about the same as Las Vegas (which I'm assuming is the most expensive among the cities listed in OP) after conversion, but the local purchasing power is a whopping 45% higher than Las Vegas.

People underestimate how much us Canadians get gouged. Life here is getting expensive at a faster pace than the US

 

[WarriorofTime]

Exactly.

As I said earlier, since 1994 (28 years), canadian teams have made the finals 6 times (21.4%), and lost every time. When you consider canadian teams have made up about 20-25% of the league over that time (can't calculate a flat percent because of all the new expansion american teams and Jets), it's not like they haven't had reasonable representation based on the number of teams over that time frame. They've just blown it every time.

If the reverse happened, and the canadian teams were 6-0, nobody would be complaining about taxes. People would be celebrating how successful canadian teams are, despite making up a quarter of the league. If they even won half those series people wouldn't care about taxes.

Of those 6 Canadian teams, only 1 (Vancouver in '11) was favored to win. 4 of the ones that got there were pretty much Cinderella teams on miracle runs. A few did get to Game 7 still but they were pretty fortunate to be there.

 

[WarriorofTime]

Actually in 28 years that's 56 teams in the finals, so canadian representation is half of what is statistically expected and the win rate immensely lower. But given that apart from the Ottawa senators from a short period no canadian teams were a consistent contender, that's not particularly unexpected.

Vancouver was a contender as well, I'd say their "window" was the following years:

09 - 3rd in west, WCSF
10 - 3rd in west, WCSF
11 - 1st in west, SCF
12- 1st in west, 1st round
13 - 3rd in west, 1st round