John Tavares tax scandal may throw wrench into Leafs' UFA plans

The Toronto Maple Leafs franchise is the most valuable amongst all NHL teams, worth a whopping $2.8 billion. Toronto can flex their financial muscle by employing more staff than other teams, and also by offering a different contract structure, with a good chunk of contracts being paid out in the form of a signing bonus. This is exactly how Toronto courted captain John Tavares in the summer of 2018.

Unfortunately, it is those exact signing bonuses that currently have Tavares locked in a legal battle with the Canadian Revenue Agency.

Tavares is currently involved in a legal battle disputing an $8 million tax bill that was handed to him by the Canadian government. The dispute stems from a $15+ million dollar signing bonus received by Tavares. Tavares says he should owe 15% on a US$15.3M signing bonus he received when he signed with Toronto in 2018. The CRA says the bonus should be taxed at 38%.

Since the implementation of the salary cap, Toronto has flexed their financial muscle to pay large amounts of money in signing bonuses to help entice players to join the Maple Leafs. If players are forced to play close to a 40% tax rate on signing bonuses, this will effectively eliminate Toronto's leverage.

It is well known, that American based teams have a significant tax advantage in their current market. Teams like the Florida Panthers, Tampa Bay Lightning, Nashville Predators, Dallas Stars, and Vegas Golden Knights can offer players a lower salary but because of the tax advantage, they would be making more money than a player offered the same wage in Toronto.

It might not be a coincidence that four out of the five teams mentioned have been having so much success lately in Gary Bettman's new aged NHL.