CRA provides update on case against John Tavares

Tavares claims this payment was a signing bonus, which should be taxed at a lower rate. However, the CRA contends that the payment is effectively a form of salary and should be taxed at a higher rate.

In January, Tavares took the CRA to court, arguing that his 2018 tax return was wrongly assessed. He believes the payment should be taxed at a reduced 15% rate for signing bonuses, as stipulated in a tax treaty for athletes and performers. If Tavares loses, he could owe an additional $8 million in taxes to the Canadian government.

This case has broader implications for Canadian professional sports teams, which often use signing bonuses to attract players. The CRA argues that the payment to Tavares was not a true signing bonus or inducement payment, but rather part of his salary. According to the CRA's response filed in the Tax Court of Canada, "the amount of USD $70,890,000 was not paid to [Tavares] as consideration for entering into, or as an inducement to sign, the Contract."

Under the Canada-US tax treaty, signing bonuses are taxed at a low 15% rate. However, if the payment is treated as regular income, it could be taxed at the top marginal federal rate of 33%, plus provincial tax in Ontario. The CRA maintains that the payment was salary and should be taxed accordingly.

Tavares argues that the payment was a signing bonus because he would still receive it even if he were injured, dropped from the roster, or if there was a labor disruption in the NHL. The CRA disputes this, stating that Tavares would only retain a pro rata portion of the bonus under certain conditions.

The case is still pending, and neither Tavares's tax lawyer nor the Department of Justice lawyer handling the case has commented. The Tax Court has not yet scheduled a hearing.

Source: Hockey Patrol
Major update in Maple Leafs captain Tavares' $15M dollar legal battle