Leafs captain John Tavares fighting Canada’s tax agency over $8M it claims he owes
Toronto Maple Leafs captain John Tavares is taking the Canada Revenue Agency to court in a fight over more than $8 million in taxes and interest the government says the star forward owes.
The dispute is over the signing bonus Tavares received for joining the team nearly six years ago. 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.
Tavares filed an appeal in the Tax Court of Canada last week through his lawyers seeking to have the CRA’s reassessment of his 2018 tax return set aside.
The appeal claims the CRA incorrectly calculated the taxes he owes on the US$15.3 million signing bonus the Leafs paid him after his contract ended with the New York Islanders in 2018.
Tavares argues 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.
The CRA assessed that he must pay a rate of over 38-per-cent on the bonus, plus interest, but it has not yet filed a response to the appeal. None of the allegations have been proven in court.
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.
The tax dispute could also discourage Tavares, 33, from re-signing with the Leafs when his current seven-year, US$77 million contract ends after next season. The vast majority of the star player’s compensation for the team is structured as a bonus, with Tavares taking a salary of less than $1 million per year.
After spending nine seasons with the Islanders, including five as team captain, Tavares became the NHL’s most coveted free agent in 2018, actively pursued by the Boston Bruins, New York Islanders, Tampa Bay Lightning, San Jose Sharks and Dallas Stars.
“Tavares is a marquee player and there was a great amount of interest by the Bidding Teams in signing him,” his lawyers state in the appeal filing to the tax court.
At the time, Sports Illustrated said the higher combined tax rates in Canada and Ontario meant Tavares’s effective take-home pay would be US$4.5 million per year if he signed with Toronto, compared to US$5.9 million if he had inked a deal with Dallas.
But the Mississauga, Ont., native surprised hockey-watchers by signing with the Leafs, saying it was his childhood dream to play for his hometown team. He says he turned down larger bids from other teams to play in Toronto, including a US$91-million, seven-year offer from San Jose.
The US$15.3-million signing bonus offered by Toronto “was integral” in his decision, the appeal says.
The CRA’s reassessment says Tavares’s income for 2018 was $17.8 million higher than reported, and calculated that he owed an additional $6.8 million in taxes, plus $1.2 million in interest on the arrears, according to the appeal.
However, Tavares argues that the bonus was paid into his New York-based bank account in July 2018 and that he spent only 45 days in Canada between September and December of that year, once he began playing with Leafs.
“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.”