Leafs captain John Tavares in trouble with the federal government
Probably not on many people's bingo cards for a Wednesday morning news piece, but Toronto Maple Leafs captain John Tavares will be taking the Canada Revenue Agency (CRA) to court over a dispute from his initial signing bonus back in 2018. The government believes the forward owes over $8 million in taxes and interest from the $15.3 million (USD) signing bonus he earned as a free agent.
Tavares' main argument is that the bonus should have been taxed at 15% "under a provision of a Canada-U.S. taxation treaty, which sets the lower tax rate for "inducements," such as signing bonuses, paid to athletes, artists, actors and musicians." Meanwhile, the CRA is under the impression that he should pay a rate over 38% plus interest.
When Tavares decided to test the free agent waters, there was a bidding war between New York, Toronto, Tampa Bay, Boston, San Jose, and Dallas. It was believed that the Sharks were the most aggressive in his pursuit, offering a 7-year deal worth $91 million. The Maple Leafs ended up landing the superstar UFA, of course, largely due to the "hometown" allure, but also because of the $15.3 million dollar signing bonus.
The CRA claims that Tavares' income for 2018 was nearly $18 million dollars higher than what was reported. Additionally, they calculated that he owes $6.8 million in taxes and another $1.2 million through interest.
Tavares' camp will be arguing that the bonus is different from salary and that it should be taxed at the 15% U.S. inducement rule because it was not only paid into his New York-based account in July of 2018 but also due to the fact that he only spent 45 days in Canada between September and December.
"The signing bonus was consideration for Tavares � a uniquely skilled and sought-after unrestricted free agent � committing to the seven-year contract with the Toronto Maple Leafs," the appeal says, claiming it was "not salary, wages or other remuneration in respect of employment."
Glen McGregor of the National Post also makes an interesting point in that a case like this might deter players from signing in Canada - not just in the NHL, but the NBA and MLB - and that it might further stain Tavares' relationship when it comes time for a contract extension. It also doesn't help that the Liberal government raised the federal tax rate from 29% to 33%, which could easily push away star athletes, especially if they're also being linked to States like Florida or Texas, who have no State tax.
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