Tavares fighting Canadian tax authority over $8m from $15.3m signing bonus
- Thread starter LadyStanley
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mouser
Business of Hockey
Note that Tavares would still be paying U.S. taxes on the signing bonus, with a 15% foreign tax credit offset for the taxes paid to Canada.
Also, for anyone trying to do the math, keep in mind the CRA is claiming Tavares owes $8m CAD. While his $15.25m signing bonus was in USD.
Also, for anyone trying to do the math, keep in mind the CRA is claiming Tavares owes $8m CAD. While his $15.25m signing bonus was in USD.
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As we have seen. All the silly people
Who think you can just sign whatever you want and make your home wherever you want and there are tax loopholes to make up for the clear tax advantages that no state tax teams get.
It’s clearly not true. The government wants their money.
You have to prove you have greater financial ties to the us.
Who think you can just sign whatever you want and make your home wherever you want and there are tax loopholes to make up for the clear tax advantages that no state tax teams get.
It’s clearly not true. The government wants their money.
You have to prove you have greater financial ties to the us.
CDN24
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- Jun 17, 2009
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I think its time for The League, the NHLPA and the tax authorities to finally level the playing field on tax advantages be it lower rates, RCAs in Canada or bonus structures that the rich teams can offer. Forgive me if this gets long
They need a model that works like how professional income (think partner in a law firm) gets taxed across provinces in Canada. If I am a partner in the Winnipeg office of a national law firm in Canada with offices in BC, AB, MN, ON and Quebec I am not just taxed in Manitoba based on residency even if I never leave Manitoba and all my clients are in Manitoba. I am taxed in all the jurisdictions where we have an office. Lets say my share of the partnership profits is 1% of the total across the firm and works out to $1 million (we are pretty successful representing NHL players in tax court). If 40% of the firms revenue comes from The Ontario offices I am taxed at the provincial level on 40% of my million in Ontario, 25% in Qc 10% in Bc, 155 in Ab and what's left 10% in Manitoba.
Tax laws in Cda and US would have to amended to make this work. Create a partnership (limited so no player liability) Each team Pays its salary dollars to the partnership and the partnership pays the players. The money in equals the money out. Then the players are taxed based on jurisdiction where the money came from. I.e. if Toronto and Ottawa collectively pay $200 million in salary out of total NHL salaries of 3 billion. Then 200M/3B or 6.67% of every players salary is taxed in Ontario regardless of their residency like the lawyer living in Manitoba. Similarly Arizona has a 80M payroll out of 3B so 2.67% of every players salary is taxed there and so on. Then do like the NBA and ban RCAs and other tax advantages not available to all. Signing bonuses can still be paid but they are taxed as professional income so no tax advantage only advantage is you get you $$ earlier.
Trades would not matter, a guy traded from a low tax jurisdiction to a higher will not pay more tax as he like everyone else is taxed in proportion to the partnerships revenue which is really the teams proportional salary cost. Their would be no perceived or real advantage to playing in a low tax jurisdiction.
Gary, if you read this and adopt my plan I will need 2 tickets for a home game in every arena for next season and maybe a few bucks to cover my travel costs
They need a model that works like how professional income (think partner in a law firm) gets taxed across provinces in Canada. If I am a partner in the Winnipeg office of a national law firm in Canada with offices in BC, AB, MN, ON and Quebec I am not just taxed in Manitoba based on residency even if I never leave Manitoba and all my clients are in Manitoba. I am taxed in all the jurisdictions where we have an office. Lets say my share of the partnership profits is 1% of the total across the firm and works out to $1 million (we are pretty successful representing NHL players in tax court). If 40% of the firms revenue comes from The Ontario offices I am taxed at the provincial level on 40% of my million in Ontario, 25% in Qc 10% in Bc, 155 in Ab and what's left 10% in Manitoba.
Tax laws in Cda and US would have to amended to make this work. Create a partnership (limited so no player liability) Each team Pays its salary dollars to the partnership and the partnership pays the players. The money in equals the money out. Then the players are taxed based on jurisdiction where the money came from. I.e. if Toronto and Ottawa collectively pay $200 million in salary out of total NHL salaries of 3 billion. Then 200M/3B or 6.67% of every players salary is taxed in Ontario regardless of their residency like the lawyer living in Manitoba. Similarly Arizona has a 80M payroll out of 3B so 2.67% of every players salary is taxed there and so on. Then do like the NBA and ban RCAs and other tax advantages not available to all. Signing bonuses can still be paid but they are taxed as professional income so no tax advantage only advantage is you get you $$ earlier.
Trades would not matter, a guy traded from a low tax jurisdiction to a higher will not pay more tax as he like everyone else is taxed in proportion to the partnerships revenue which is really the teams proportional salary cost. Their would be no perceived or real advantage to playing in a low tax jurisdiction.
Gary, if you read this and adopt my plan I will need 2 tickets for a home game in every arena for next season and maybe a few bucks to cover my travel costs
So why should NHL players get preferential tax treatment? If changing, the law it should apply to all workers that derive their income from multiple jurisdictions. And if that's the case be prepared for an administrative nightmare. Canada Revenue alone would have to to increase its work force dramatically to keep up and the same for the provinces.
The purpose of the salary cap has NOTHING to do with creating a level playing field, despite Bettman's rhetoric in 2004-05. It is to control costs and make sure the players are not getting too big of a percentage of the revenues. If it was ever proposed to include tax implications on the salary cap, it would lead to another, probably even bigger fight. Players would want teams in high tax areas to be able to spend more. Owners would want teams in low or no-tax states to have their salary cap cut. Good luck getting either side to budge.
As far as getting tax law changed to even the playing field? yeah, good luck on that. However, I do like the idea and do think it makes sense. The NHL is really ONE business with 32 departments. However, I can see the arguments against due to cost of living differences and need for different tax amounts. In NYC, teachers earn A LOT more than most teachers around the country. Nassau County (Isles) have the highest paid police officers in the country, at least last time I checked.
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CDN24
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Some are getting preferential treatment now, those in low tax jurisdictions those in Canada that can use a RCA, Non-Canadian residents on Cdn teams that play for a team that can afford the high bonus contracts. It applies now for those earning professional or business income, they get taxed where the income is earned not based on residency. Players are already taxed to a degree where the games are played. This would be better for states provinces that have teams as they would over the league be collecting tax on the amount paid by teams in their jurisdictions. Using Leafs as an example, a guy like Matthews has probably paid less than $10M in Canadian tax on the 55 million or so he has earned with the leafs. If we want local jurisdictions gov't to support teams arenas etc we better make damn sure they get their fair share of taxes on player salaries.
In the US, we have the "jock tax". However it is different state to state. Some states, if you play 1 game in the state for the year, you pay state and local taxes based on 1/82 of your salary. Other states, it is based on the number of days. So, if you fly in thursday, plays friday, fly out saturday, they charge you on 3/365 or 3/(# of days in league year), etc. So, the belief that the Lightning, Panthers, Stars do not pay any state taxes is a myth.
CDN24
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I agree each players situation is different and very few players playing in high tax jurisdictions are paying tax at top rates on all their salary.
I think it may be somewhat similar here for the non Canadian residents in that they will be taxed on a part of their salary for games played in Canadian jurisdictions, and obviously a Canadian resident is subject to those jock taxes in various US states.
Most of these guys are filing a return everywhere anyway - my simplified proposal just eliminates the need to count days etc and its the same for everyone. It would never happen because of the 2 national jurisdictions - NHL might go for it but not sure players assn would- some guys are benefiting too much under current system.
That said i think these multi year signing bonus paid by cdn teams to non-resident players will soon attract CRAs attention if they have not already. I have no knowledge on how Matthews files his taxes but I suspect he can easily maintain Arizona residency. Then only the base salary equal to league minimum is subject to regular canadian tax and the various jock taxes. The rest of his salary is paid as a signing bonus gets taxed at a flat 15% in Canada. Then it gets declared where he is resident (say Arizona) it is taxed at I think 39.5 % (37% fed tax and 2.5% state tax) He gets credit for the 15% paid in Canada so. Canada gets 15% and us/AZ get 24.5% (39.5-15).
At some point CRA will wake up and say this is a signing bonus in name only. It is dependent on the player playing (he won't get the last years bonus if he retires and does not play) so it has nothing to do with signing and is in fact remuneration for playing and should be taxed as regular salary.
I remember a few years ago watching a show about the NFL rookie symposium. One of the speakers told the rookies one of the people they needed to hire was a tax accountant familiar with the laws in every state where the league has a team (or something like that).
A few years ago, when McCutchen was on the Pirates (think it was McCutchen) a screenshot of his paycheck was circulated online. Showed all the deductions for taxes in a few different states.
Tavares is a Canadian Citizen signing with a team in Canada. He will be assessed the full amount and not the 15%. The 15% is only as the tax credit to the US or Canada, but the remainder still needs to be paid in full to the country of residence.
MLB players get around this by doing deferments on their salaries. Jose Bautista being the most recognizable of late. They store their deferment in escrow and pay down their liability with the interest accrued.
I think whoever was managing Tavares' financials made a serious blunder. I'm assuming Tavares is simply trying to do a settlement do offset the full amount. It happens a fair bit and allows him to settle for a lower amount.
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Reading the argument from Tavares' lawyers is pretty weird. He's saying he spent only 45 days out of 120 between September and December. It's not where you physically are, but where you claim residence. Since he's not living in a separately owned domicile while traveling with the team, he can't claim a second "residence." And it's actually worse for a Canadian Citizen to be employed by a Canadian company and keeping your holdings out of country. It smacks of tax evasion to Canada Revenue (or even the IRS), hence why they are going after him. Like I said, though, this is really about trying to get a settlement.
Tavares was dumb to take a huge lump signing bonus while in transition between countries. Just bad financial advice. This has no effect on just about any other pro athlete in Canada, but is a good lesson for what you should and shouldn't do with contracts.
MLB players get around this by doing deferments on their salaries. Jose Bautista being the most recognizable of late. They store their deferment in escrow and pay down their liability with the interest accrued.
I think whoever was managing Tavares' financials made a serious blunder. I'm assuming Tavares is simply trying to do a settlement do offset the full amount. It happens a fair bit and allows him to settle for a lower amount.
Edit:
Reading the argument from Tavares' lawyers is pretty weird. He's saying he spent only 45 days out of 120 between September and December. It's not where you physically are, but where you claim residence. Since he's not living in a separately owned domicile while traveling with the team, he can't claim a second "residence." And it's actually worse for a Canadian Citizen to be employed by a Canadian company and keeping your holdings out of country. It smacks of tax evasion to Canada Revenue (or even the IRS), hence why they are going after him. Like I said, though, this is really about trying to get a settlement.
Tavares was dumb to take a huge lump signing bonus while in transition between countries. Just bad financial advice. This has no effect on just about any other pro athlete in Canada, but is a good lesson for what you should and shouldn't do with contracts.
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This is entirely incorrect.
Bettman instituted and absolutely wanted parity. He said it. He still says it. He instituted it.
Cost certainty can be applied by having different teams have different caps. As long as the total salaries league wide equal 50% of hrr they have filled the requirement.
Team a gets to spend 100 million. Team B gets to spend 50 million
Is just as certain as
Team A and B both spending 75
The idea that 32 teams with different markets and different revenues all have the same parameters is parity
Demon Eyes
Registered User
- Nov 29, 2014
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would a signing bonus even be allowed to be spread out to other districts? it's technically not a salary for his work, and he receives it all in one district.
The problem was that he never accurately accounted for his residency. By saying that he dropped his bonus in his NY account and then changed countries for residence, he created a bigger issue. He would have been better off if he had moved to Canada, done a tie-break, and then received his bonus. Not knowing the full details of his accounting, and working off the assumption that since he is claiming non-residency in the first year of his contract, he's made a mountain out of a mole hill. Because if he resolves the issues with Canada Revenue, he's actually opened himself up to an audit from the IRS, who will be looking at whether he reported his US income correctly, assuming he took his money across the border with him and that he had any level of investment of his money either in properties, interest-bearing, or dividend accruing investments. If you are a citizen of the country where you are being employed, don't ever mix where you keep your money. One country or the other (sometimes both) will constantly harass you for potential tax evasion.
Also...if he was tie-broken, while living in the US, as soon as he signed the contract with Toronto, being a Canadian citizen, he re-stablished his tie to Canada and now has to pay the higher of the two amounts of taxes to either the US or Canada and then report the difference as a tax credit so that he doesn't get double-taxed. But I'm assuming he never tie-broke if he maintained and property in Canada.
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Sure.
The explicit words of the commissioner and the way that the cap was completely artificially made to be equal among all teams despite teams like Arizona taking retired players to get to the floor.
I will believe that.
DopeyFish
Mitchy McDangles
- Nov 17, 2009
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i'm gonna side with the government here
the majority of the contract is in a signing bonus. how can you consider it a bonus if it's the majority? his signing bonus is 11.6x that of the salary. it's also being applied to every year of the contract, not just the first year or the moment the contract was signed.
these weird attempts to skirt taxes need to go away.
the majority of the contract is in a signing bonus. how can you consider it a bonus if it's the majority? his signing bonus is 11.6x that of the salary. it's also being applied to every year of the contract, not just the first year or the moment the contract was signed.
these weird attempts to skirt taxes need to go away.
So, you take everything Bettman says to heart? Sorry, not me. It was a cute talking point, but the only concern was controlling player costs.
theVladiator
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- May 26, 2018
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I thought this is already done this way pretty much. At least for the salary portion of the contract (the one that is paid on per game basis). Namely, the players are taxed separately for every game they play. So 50% of the games are played at home and are taxed at rate of the home team location. On the road, the player pays taxes at the rate of the home team (and to the home team's jurisdiction?) Maybe I misunderstood, but I thought this is how it worked.
The bonus portion is considered paid out and taxed in the jurisdiction of player's residency.
theVladiator
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For clarity, the dispute seems to be around the 1st year of the contract (and the related bonus). He is likely to be paying Canadian taxes on the rest of his bonuses. And, as I have read in this kinds of threads before, I do not think he is paying full ON taxes on them either, as those bonuses are taxed preferentially (deferred taxation?) under Canadian tax law.
Long story short, I do not think there any implications for Matthews signing bonuses, seems like he is going to continue paying AZ taxes on them.
Long story short, I do not think there any implications for Matthews signing bonuses, seems like he is going to continue paying AZ taxes on them.
Edenjung
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- Jun 7, 2018
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Even the joker knows that you do not **** [mod] with the tax man.
@theVladiator
He resides in Arizona?
Ok thats interesting.
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Again. It’s way more complicated than that.
Every single year an American player in Canada has to prove “greater financial ties” to one country over the other that year.
So in Matthews case it’s
Days in a country (if somehow the leafs went on a deep run especially against can teams)
Property…… house/car/long term lease. Kids in school etc.
He may get away with it every year by going straight home to Arizona and getting new property/cars every year.
But at any point the CRA can audit and try.
They want their money.
Headshot77
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- Feb 15, 2015
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If this comes to pass it'll make even fewer players want to play in Canada.
I think the NHL might need to find a way to make salary cap considerations occur post-tax to level the playing field. Everyone is going to want to play in Florida and Vegas otherwise.
I think the NHL might need to find a way to make salary cap considerations occur post-tax to level the playing field. Everyone is going to want to play in Florida and Vegas otherwise.
theVladiator
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From what I gather, the main dispute is whether Tavares was a Canadian taxpayer at the time the bonus was paid. It's hard to say if CRA thinks that he was a Canadian taxpayer for the whole of 2018, or that he essentially became Canadian taxpayer when he signed the contract, or when he re-entered Canada. I think the whole salary/bonus bit of Tavares side is there just to conclude his argument as to which portion of the year the bonus belongs to, it doesn't look like CRA is trying to classify bonus portion of Tavares contract as salary, or change the status quo in some other way.
This would explain why only 2018 tax year is in dispute. This also means that the published claims about this case impacting ability to attract NHL players yada yada yada is a huge stretch.
This would explain why only 2018 tax year is in dispute. This also means that the published claims about this case impacting ability to attract NHL players yada yada yada is a huge stretch.
mouser
Business of Hockey
I don’t know that the articles and details I’ve seen so far definitively say the CRA isn’t pursuing a change in the status quo.
However the simple fact that this case is for the 2018 tax year and we haven’t heard leaks about other similar CRA actions for the many other players like Matthews using a similar tax reduction strategy for signing bonuses suggest this isn’t a step in changing the status quo.
