John Tavares fights Canada Revenue Agency over an $8M tax bill

Toronto Maple Leafs captain John Tavares didn’t get a chance to relax during the All-Star break as Glen McGregor of the National Post revealed he filed an appeal in the Tax Court of Canada through his lawyers. That’s because the Canada Revenue Agency claims Tavares owes over more than $8 million in taxes and interest related to the signing bonus he received for joining the team nearly six years ago.

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%. Tavares argues that the bonus should have been taxed at only 15 per cent 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.

As McGregor points out: “But the outcome could affect Tavares’s future in Toronto and, more broadly, the ability of Canadian professional sports teams to sign pricey top players.”

"The outcome of the case could have a bearing on professional sports franchises looking to offer big signing bonuses to convince unrestricted free agents to play north of the border — a task made harder by the Liberal government’s decision to raise the top federal tax rate from 29 per cent to 33 per cent in 2016," writes McGregor.

And then fans wonder why players are hesitating about signing north of the border…

This could therefore mean that Tavares could reconsider a contract extension with the Maple Leafs moving forward. The captain’s current seven-year, US$77 million contract ends after next season. The deal was set up in a way that his compensation was structured as a bonus, with Tavares taking a salary of less than $1 million per year, helping the Maple Leafs’ tight salary cap.

This could have a significant impact, not only on the future of Tavares in Toronto, but also on the ability of Canadian professional sports teams to sign top players seeking expensive deals.

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