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In a legal battle with the Canada Revenue Agency over more than $8 million in taxes and interest the government claims the star forward owes, Toronto Maple Leafs captain John Tavares is bringing the agency to court.
The amount Tavares received as a signing bonus when he first joined the team over six years ago is at issue. However, Tavares’s future in Toronto and, more generally, Canadian professional sports organizations’ capacity to sign high-priced elite players may be impacted by the result.
Through his attorneys, Tavares filed an appeal with the Tax Court of Canada last Thursday, requesting the reversal of the CRA’s reevaluation of his 2018 tax return.
The appeal argues that after the Leafs paid him a US$15.3 million signing bonus following the expiration of his contract with the New York Islanders in 2018, the CRA miscalculated the taxes he owes.
Tavares contends that the bonus should have only been subject to 15% taxation in accordance with a clause of the tax treaty between Canada and the United States that establishes the reduced tax rate for “inducements,” such as signing bonuses, given to performers, athletes, and artists.
The outcome of the case might have an influence on professional sports organizations attempting to provide huge signing bonuses to lure unrestricted free agents to play north of the border — a process made harder by the Liberal government’s decision to hike the maximum federal tax rate from 29 per cent to 33 per.Tavares, 33, may be deterred from signing a new contract with the Leafs when his current seven-year, US$77 million deal expires after the upcoming season due to the tax disagreement. Tavares receives less than $1 million in pay year from the organization; the great player’s money is arranged primarily as bonuses.