CRA Compelled To Disclose Key Audit Documents In Maple Leafs' John Tavares Tax Dispute

The Canada Revenue Agency (CRA) has been ordered by the Tax Court of Canada to disclose key internal documents in its ongoing battle with Toronto Maple Leafs captain John Tavares, marking a significant development in a case that could have sweeping implications for how professional athletes are taxed in Canada.

During a procedural hearing this past week, Justice John Yuan ruled that the CRA must answer several previously refused questions and produce documents related to its audit of Tavares' $15.25 million signing bonus. The court’s decision compels the CRA to hand over records from the files of the lead auditor and team leader who handled the reassessment, along with limited information about how the agency handled similar cases involving other U.S.-based NHL players.

The dispute stems from a reassessment issued by the CRA claiming Tavares, a U.S. resident when he signed with the Leafs in 2018, owes roughly $8 million in Canadian taxes on his signing bonus. Tavares’ legal team, represented by KPMG Law LLP, contends that under Article XVI of the Canada-U.S. Tax Treaty, the bonus should be taxed at a preferential 15% rate, as it qualifies as income earned by a non-resident performing services in Canada. The CRA argues the bonus was compensation fully taxable under Canadian domestic law.

Last year, the CRA responded to Tavares' argument that his $15.25 signing bonus payment in 2018 was not a signing bonus or an inducement to sign. They noted that he signed the contract while he was a resident of Canada and stated that the $70,890,000 paid in signing bonuses over the term of the contract was not paid as a consideration to sign.

Tavares argued that it is a signing bonus because he would still collect the money if he was injured or taken off the roster or if there was labour disruption. He noted that he signed the contract as a U.S. resident, finishing his previous season with the New York Islanders. But the CRA pointed to the fact that if the player breached his contract or voluntarily retired or withheld his services, that the Tavares would only be entitled to a retain a pro rata portion of his bonus.

In the recent hearing, Tavares’ lawyers challenged the CRA's refusal to provide answers and documents related to three key areas. These included files from the CRA auditor and audit team leader, communications with other CRA departments involved in the reassessment, and information about the tax treatment of other American NHL players who received similar bonuses.

In the latter, the CRA presented six NHL and four NBA players in their T980 audit report on Tavares' reassessment as a comparable. They noted that in their totals from an unaudited period to the audit period beginning in 2016-17, the anonymous NBA players saw their signing bonuses go up by a factor of three, while NHL signing bonuses went up by a factor of 50.

When Tavares' lawyers asked the CRA if the 10 anonymous players cited had undergone a  T980 audit, the CRA refused to answer citing relevance and privacy concerns under section 241 of the Income Tax Act.

Judge Yuan rejected many of the CRA’s objections, which had included claims that the requests invaded the internal "mental process" of CRA officials or breached taxpayer confidentiality. Instead, the court found that several questions were relevant to assessing whether Tavares was treated fairly and whether the CRA’s conclusions were consistent with past cases. The judge placed limits on some disclosures, particularly where third-party confidentiality could be compromised, but ultimately ruled that key aspects of the CRA’s audit files must be shared with the appellant.

In January, Tavares appealed the CRA's reassessment of his 2018 tax return. Since that time other former Maple Leafs like Patrick Marleau and Jake Muzzin has been involved in similar battles over their signing bonuses.

The lawsuits and CRA actions could make it difficult for the Maple Leafs and other Canadian teams to use signing bonuses as a way to attract players from the United States. Another form of tax savings, known as a Retirement Compensation Arrangement (RCA) was also scrutinized by the CRA in cases against former Toronto Blue Jays players Josh Donaldson and Russell Martin. Both players won their case in Canadian Tax Court in December of 2024. However, the CRA has since appealed the decisions, and their case is now being seen by the Federal Court of Appeal.

“John paid U.S. tax on the bonus as a New York resident,” said Tavares’ agent, Pat Brisson of CAA Hockey told THN earlier in the. year. “Canada wants to treat it as if it was theirs. It’s merely a question of who gets the tax. We are confident of the case and our position. But the ramifications are huge for Canadian sports fans.”