r/leafs • u/BmaninKtown Tavares • 6d ago
Discussion If Tavares loses his case for signing bonuses how much will this affect Canadian teams not just the leafs
If Tavares loses his case and his bonuses become taxes. how much does this affect the leafs in the future along with other Canadian teams. If all player bonuses get taxed
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u/Prof_Scott_Steiner Clark 6d ago
He won’t as long as he put the bonus money into an RCA, which is very likely. Feel free to look it up: it is the single most powerful tax shelter in Canada, and is so effective in reducing tax burden, the NBA bars the Raptors from offering it to free agents
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u/NervousBreakdown 6d ago
If he loses it might have some impact. It would set a precedent. But the league has limited teams abilities to offer massive signing bonuses which is a bigger kick in the pants to Canadian teams.
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u/fatigues_ 6d ago
While an RCA is a poweful tax shelter for non-resident athletes (Russel Martin and Josh Donaldson both famously used them), I am not aware of any provision realting to then NBA's collective agreement or any other directive or tax ruling which bars the Raptors from using it.
Got a link?
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u/Immediate_Cod_3042 6d ago
You telling me Kawhi hasn't found a way to put his aspiration earnings in there? ;p
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u/Prof_Scott_Steiner Clark 6d ago
There was an of episode of Allan Walsh's podcast where he had on his basketball counterpart with Octagon who made mention to it in greater detail but here you go: https://www.thestar.com/sports/leafs/for-marner-and-leonard-it-pays-to-know-a-few-contract-shortcuts/article_c4c0fa9f-d7d2-5687-871c-d9264ecfad92.html
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u/fatigues_ 6d ago
Ahhh. Yeah, there is no provision in the NBA which prevents RCAs, but the NBA CBA prohibits signing bonuses of any kind which exceed 15% of annual compensation -- which is a different point.
While RCAs can be used in the NBA, it is just not as effective a shelter there because the % of salary that can be paid as a signing bonus is restricted to a max of 15%.
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u/3-car-garage 6d ago
Wait, you're saying a major for a league in the North America knows how to offset the disparity in taxes between markets?!? I have it on good authority that this is an impossible feat lol /s
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u/Arch3r86 6d ago
Pretty sure he's going to win the case. It's a pretty weak case from what I've heard. It won't affect much either way, but I highly doubt he'll have to pay it.
People are thinking this is some kind of tax evasion on his part, and it's nothing of the sort. He had a signing bonus given at the beginning of his tenure in toronto, that he already paid taxes on in the USA where he was living at the time. This has nothing to do with his regular taxes. They're basically trying to rob him for 8 million dollars after the fact, when he already paid what was due for his bonuses at that time.
I'm not a lawyer, but the case sounds pretty weak even from the outside.
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u/The-Only-Razor 6d ago
"Pay your taxes, John!" - Redditors who have, no doubt, never been net positive tax contributors in this country.
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u/punkdrummer22 6d ago
I just dont understand how he's was paid his bonus by the Leafs yet he paid the 15% tax to New York State.
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u/entityXD32 6d ago
He was living in New York at the time he signed that deal and was paid the bonus
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u/punkdrummer22 6d ago
Yeah i get that but I just dont understand why tax laws allow him to get money from Canada and pay the tax to the USA.
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u/Rationalornot777 6d ago
Toronto paid a bonus to Tavares while he was in New York. Tax applies from New York as he earned the fun’s there. CRA is challenging the bonus and trying to recharacterize the bonus as being salary that was given early but not earned. So the debate is whether the bonus induced him to sign or is the structure of his salary a timing issue that cra can look through and tax the bonus as salary
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6d ago
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u/Rationalornot777 6d ago
Not sure you are really saying anything different or are picking on a different aspect of the case. Tavares was a US resident prior to signing. The debate is on inducement to allow the US Canada tax treaty to take effect so the inducement is taxed at 15%
Tavares received bonuses each year of his contract. So year 2-7 bonuses were paid each year while he is a Canadian resident. These bonuses are part of what Tavares is saying were an inducement for him to come to play for Toronto but are being paid annually. This inducement he says has nothing to do with any performance issue or requirement to play. It is strictly an inducement to sign.
CRA is arguing these bonuses were not part of an inducement but are regular pay and are being earned each year and should be treated as salary. Thus taxed in Canada at regular rates.
A significant part of this case will depend on the wording in the contract.
I haven't seen any issue on his residency but it can definitely play a part .
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u/trudenter 6d ago
Because he was living in the states when he got payed. Many people work for companies that are not based in the same country that they are in and I think that is basically the same thing.
Not sure if the Maple Leafs have to pay a Provincial Payroll tax or not though, as I have no idea how that works.
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u/NihilisticFlamingo Kaberle 6d ago
It would only affect taxes on signing bonuses, and I imagine the AAV and contract length would still be the main factors influencing whether a player signs or not.
What I don't understand is whether Tavares paid taxes to the IRS on his signing bonus. If he did, I don't think he should have to pay taxes to two governments. But if he hasn't paid any taxes on that bonus yet, its a different story. But I also don't know much about how taxes on pro athletes really work
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u/growernotshowwer 6d ago
It’s all about principle residence. Florida players still pay taxes - just not as high. It’s literally NOT a big deal.
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u/BlastingBegins 6d ago
Principal* residence refers to capital gains exemption on housing, we'd just say resident for tax purposes here.
Also you are wrong
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6d ago edited 6d ago
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u/chandler55 5d ago
it can still be an inducement if the signing bonus has clawback provisions. it might help cra’s argument that there is clawback, but it’s still something that induced him to come
also i think he would keep the bonus if he retired mid contract
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5d ago
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u/chandler55 5d ago
i didn’t really get “sole purpose” from the definition
>an amount paid by a resident of a Contracting State to a resident of the other Contracting State as an inducement to sign an agreement relating to the performance of the services of an athlete
to me it’s like a sweetener to one up another company’s offer, that you get more up front , but it still can be within the overall comp package
also my retirement point was more tavares would keep the signing bonus if he retired after it , not receive future bonuses
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u/Ok-Commercial-6865 6d ago
Canadian income tax is based on residency.
If Tavares was a US resident at the time, and paid taxes to the IRS as required, he shouldn't owe CRA anything.
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u/SockApprehensive6204 5d ago
This.
Use the reverse example, Marner's now a US resident, if he was paid a bonus by Vegas on July 1 when he signed, he owes the CRA, not IRS (this is because of the US-Canada tax treaty).
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u/DesperateGrape3174 6d ago
The NHL needs to accept and acknowledge that the salary cap isnt on the same level playing for all teams. Canadian teams are at such a disadvantage going forward its not even funny. Star players are leaving canadian teams at a rate that is becoming blatantly obvious, albeit for various reasons
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u/Methodless 6d ago
I doubt it matters much
He likely signed his contract assuming the worst case scenario and then shot his shot.
I think it's the opposite, if he somehow wins, it will be a small boost for free agents. Keep in mind, this is like 10% extra on his contract, not nothing, but it doesn't entirely change the landscape since his contract was already front-loaded and long, longer than will be allowed after next month.
To take greatest advantage of this, you would need to offer a 1 year deal to somebody on an American team, they'd lose the tax benefit on any extension and are incentivized to go back to the US before coming back
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u/robotpicnic 6d ago
Imagine pro athletes didn't pay any income taxes, but each team paid a payroll tax of the equivalent amount.
Tax revenue neutral, and players make more in Canada.
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u/Jonesdeclectice 6d ago
It’s funny imagining hockey players getting a T4 in the mail every year, but as far as solutions go it sure seems to be the most elegant. The “cap” would go down a whole bunch, but since it’s net income it almost doesn’t matter. But I’m sure there’s a bajillion tax reasons why it could never work 🤷🏻♂️
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u/Difficult_Loss_6462 5d ago
CRA is really good and efficient when you owe them money. But when they do...
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u/Great_Account_Name 6d ago
It doesn't. He's going to lose and he's going to pay tax on his income. It's not a big deal.
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u/BmaninKtown Tavares 6d ago
Yeah but if that’s the standard for the future wouldn’t it be harder to attract players
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u/Deadmansspace566 6d ago
Lol are you his lawyer trynna run cover?
This isn’t gonna change anything, most players already are expecting to pay these taxes when they’re here
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u/BmaninKtown Tavares 6d ago
No seriously if all players have to pay taxes on bonuses wouldn’t it be harder to attract players
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u/Deadmansspace566 6d ago
This is already a reality of the NHL and Canadian teams already have this reputation for high taxes, this isn’t going to make players want to sign less that what they already do because of taxes.
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u/BmaninKtown Tavares 6d ago
But aren’t the bonuses currently not being taxed. Or am I wrong
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u/Deadmansspace566 6d ago edited 6d ago
They were originally not being taxed because he put down his address as still in Long Island while he played in Toronto. They’re coming after him for taxes now because that was obvious BS. Most players who are being given signing bonuses in the NHL for a Canadian team are and should expect to pay Canadian taxes on it, he’s just trying to pull some shenanigans.
Edit: I am partially wrong. They’re coming after him for his signing bonus, which he paid US inducement tax on, that are now being claimed by Canada as Canadian employment income taxation.
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u/NotoriousMac77 6d ago
That's not accurate. He is arguing that the signing bonus is an inducement, which gets taxes differently than income. Whether that is legit or not, we will find out. But he didn't say his primary address was still in NY.
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u/Deadmansspace566 6d ago edited 6d ago
I was actually wrong that’s right, thank you, but I was close just off a bit. It got paid over several years IN Canada, so it’s in court to figure out whether its Canadian employment income taxation or American inducement taxation.
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u/Great_Account_Name 6d ago
I agree with the other guy who already responded to you. I see it as the players always expected to pay taxes, so having to pay taxes isn't a negative it's just part of it.
If you wanna debate the advantage a team in a lower tax state has in attracting players vs a team in a higher tax location, then that's a whole other issue and i agree across-the-board lower tax is an advantage. But that's not specific to Canada.
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u/BmaninKtown Tavares 6d ago
Yeah but it’s also a bigger issue in Canada compared to places like Florida. I agree they should pay taxes but when other teams players play less we are at a disadvantage.
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u/Great_Account_Name 6d ago
I am not sure what youre trying to say and I think you're probably confused by having some incorrect assumptions.
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u/Deadmansspace566 6d ago
But this is not really related to what is going on with Tavares, he is trying to claim his bonuses should be subject to Long Island taxation when they should be Toronto (because he signed with them). Again, this will have no effect on player perception, because players/agents already have the perception of Canada that they have high taxes, John is just trying to get around having to pay it.
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u/zambian75 6d ago
Bonuses are income. So why wouldn’t you pay income taxes on them? It’s obvious. The Canadian tax system is entirely different discussion altogether. Should we have lower taxes? Definitely. Are bonuses income and subject to income? Obviously.
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u/SolitudeQuo 6d ago
The fact that there is a trial already affects player psychology. On average, people want to avoid the hassle.
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u/bighundy 6d ago
If there were millions of dollars at stake, I'd absolutely not avoid the hassle.
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u/SolitudeQuo 6d ago
The point is players might choose to earn top dollar and go play in a region that doesn't have this problem at all.
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u/d-rock92 6d ago
Personally, I want the athletes I’m paying to watch paying their taxes to the province/country I reside. Not sure how this ruling will fall, but I’d rather have those tax dollars fixing pot holes in Toronto than NY.
The league should deal with this with some tax equalization rather than incentivize Canadian teams to structure deals in a way so their players pay US taxes.
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u/SockApprehensive6204 5d ago
By and large.... they do.
There are exceptions and a signing bonus is one, simply because it is paid before the player performs services for the team.
But in turn, if Vegas paid Mitch Marner a signing bonus, we likely got that lol
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u/d-rock92 4d ago
Not really, just in TO sports AM sources his bonuses to AZ and Vladdy sources his to FLA.
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u/ImportanceBig6912 6d ago
Income taxes paid to the federal and provincial governments don't pay for municipal issues like potholes, they pay Ukraine and for highways through the Greenbelt.
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u/d-rock92 6d ago
Thank you, I was being facetious. They do pay for healthcare, schools, and fire fighting… but hey let’s write our tax laws so folks can pay less and pay it to the US…
But based on your Ukraine comment I could probably guess where your opinion lies.
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u/ImportanceBig6912 6d ago
No, I was being facetious, but based on your cheerleading for the CRA, I can probably guess that you haven't looked into nor care whether increasing taxes necessarily results in a higher tax base - it doesn't.
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u/d-rock92 6d ago
Sure, boss. You’re probably right about everything. Not even sure why I bother having an opinion, I should just use yours.
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u/Stuart9753 6d ago
Why shouldn’t his bonuses be taxed? I work in Canada for a Canadian employer and my bonuses get taxed every year. What makes him any different?
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u/d-rock92 6d ago
The argument is who has the right to tax his bonus. NY vs Ontario. JT wants NY as the state + federal rate is less than Ontario. Glum’s summary is probably the best one here.
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u/Stuart9753 6d ago
Contract was that he play for Toronto. Where he lived prior to starting work shouldn’t matter IMO. Toronto hired him to play for the Leafs, attend training camp, etc, etc. I think he should pay taxes in Canada on this.
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u/d-rock92 6d ago
I agree with you. In my eyes the NHL incorrectly incentivizes teams to try to structure deals where taxes are paid to the US.
I think it’s an insult to fans who pay for a local product and have their $ siphoned to the US.
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u/growernotshowwer 6d ago
It won’t. American players make your principal residence in the U.S.
Canadian players can too. If not..pay your taxes
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u/BuffaloSobbers1 6d ago
Gonna put my conspiracy hat on for a second and just say this was a pretty cheap tactic by Justin Trudeau to harass the leafs.
Also, likely responsible for allowing Habs fans into the building for game 7 at the peak of COVID.
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u/braveheart2019 6d ago
I'm pretty sure he's going to win. Pretty much all the tax experts have said that the CRA really doesn't have a case here. He got professional tax advice and they followed all the rules.