Toronto Maple Leafs' captain John Tavares is currently in a legal battle with the Canada Revenue Agency (CRA). The CRA reassessed Tavares' taxes and determined he owes millions in unpaid taxes from 2018. Tavares contends that the disputed amount is his signing bonus from when he signed with the Leafs, totaling around $8 million.
The outcome of this case could have significant repercussions. For decades, a tax treaty between the U.S. and Canada has established a 15% tax rate on payments like signing bonuses, which is Tavares' defense against the CRA's claim.
If Tavares is found liable for the additional taxes, it could impact Canadian NHL teams. A key factor in contract negotiations is the net take-home pay for athletes. Dan Robson of The Athletic highlighted this issue, focusing on the specifics of Tavares' contract.
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"Tavares' contract specifies that his bonus is dependent on him playing games to the best of his ability, reporting to training camp, and keeping in good physical condition," Robson wrote. "If Tavares retires, withholds his services, or leaves the Leafs without consent, he breaches his contract and would be forced to repay a portion of the bonus."
The CRA argues that Tavares' obligations to earn the bonus are fulfilled through his regular season work, classifying the money as a payment for services rather than a bonus.
Should Tavares be required to pay back taxes, it might deter players from joining teams like the Maple Leafs in free agency. Canadian teams often use signing bonuses to lower taxable salaries and increase player earnings. With some U.S. teams located in states with no income tax, Canadian franchises are already at a disadvantage. Additional taxes on signing bonuses could further tilt the balance in favor of U.S. teams.
The situation is complex and uncertain. Tavares hopes to avoid paying an additional $8 million, while the Leafs and other Canadian teams are concerned about potential precedents affecting their ability to attract free agents.
