John Tavares and the Canadian Revenue Agency continue to battle in an off-season financial dispute over what the CRA calls the forward’s mislabeling of a signing bonus paid to him by the Toronto Maple Leafs in 2018. The two sides disagree on how to categorize the $15.25 million (US) he was given up front when he signed. He calls it a signing bonus. The CRA does not. The appeal Tavares filed when it was deemed he owed $8 million was responded to and it doesn’t look promising for the Leafs’ captain.
According to CityNews’ Glen McGregor, the CRA “denies that any amount referred to as a ‘signing bonus’ was a signing bonus or an inducement payment,” according to the appeal response. Tavares took the CRA to court in January to claim that they had wrongly assessed his 2018 tax return. He maintains the $15.25 million payment from the Leafs should be taxed at a reduced rate of 15 percent for signing bonuses paid to athletes, as set out in a tax treaty. The CRA claims that this wasn’t a signing bonus, but part of his salary paid out early.
The CRA is arguing that had Tavares left the team, missed games, or otherwise not been a part of the roster, he would only have been given a prorated amount of that $15.25 million. Meanwhile, Tavares’ side argues that if the NHL were to go into a labor stoppage and the NHL didn’t play, he’d be entitled to the full bonus.
What Does This Mean For Tavares?
There are a few things that could affect Tavares and the Maple Leafs if he doesn’t win the case. First, he’s got one more season on his current deal and while he’s made far more than the $8 million the CRA is claiming he owes now, $8 million is a chunk of change. How does this affect his willingness to sign a smaller, more team-friendly deal if he’s out of pocket that kind of money?
He’ll be paid $11 million on the cap this season, but that’s not his actual salary. $7.04 million of that will be paid at the start of the season as a “signing bonus.” His base salary is only $910K, which essentially means he’d be playing this season for free. Is that an issue? It’s hard to say, but it could factor into any future decision he might make regarding signing again, accepting a trade, or trying to produce to earn another solid contract offer. Does it affect his desire to stay in Toronto or waive his no-move for a trade?
I won’t begin to act like I know how Tavares has been with his money, but this isn’t like Jacob Trouba getting a $5K fine from the NHL. $8 million is going to make a dent.
What Does This Mean for the Maple Leafs?
Looking forward and beyond what this all potentially means for Tavares, what does it mean for other players either with the roster and looking at extensions or thinking about joining Toronto as a free agent? If the CRA doesn’t deem these upfront payments and signing bonuses and the players aren’t wise about how to take care of the tax implications, how many other players will get burned by this? Worse yet, how many will want to avoid the CRA argument altogether?
There are already several NHL players who don’t want to come to Canada, for a myriad of reasons. Adding this sort of complication for players who Toronto’s deep pockets might entice may scare players away. If Tavares loses this case with the CRA, what precedent does that set for other NHLers? Even if he wins, how many free agents decide that fighting that battle, even if they stand a good chance of winning just isn’t worth it?
This may all amount to nothing because Tavares’ case is potentially unique. He was a U.S. resident, paying U.S. taxes, but was born in Canada. The CRA says he was in Canada long enough that he was responsible for paying the CRA, including their want to tax his massive signing bonus at a higher rate. What combination of current players might be looking at the same situation that caused the CRA to take issues with Tavares’ tax return?
