Toronto Maple Leafs captain John Tavares is taking the Canada Revenue Agency to court in a tax dispute of over $8 million.
Court documents show Tavares filed an appeal through his lawyers last week in the Tax Court of Canada seeking to have the CRA’s reassessment of his 2018 tax return annulled.
The CRA, according to the appeal, determined Tavares’s 2018 income was $17.8 million higher than reported and ordered the player to pay $6.8 million in taxes — over 38 per cent — plus $1.2 million in interest.
Tavares, a 33-year-old from Mississauga, Ont., signed a seven-year, US$77-million contract to join his hometown Maple Leafs on July 1, 2018. He previously played for the New York Islanders from 2009 to 2018.
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The $17.8-million sum accounts for a US$15.25-million signing bonus in the contract’s first year, which “was integral to Tavares’ decision” to accept the deal, the appeal states. It adds the player rejected higher offers from other teams, including a seven-year, US$91-million contract from the San Jose Sharks.
Tavares also considered playing for the Islanders, Boston Bruins, Dallas Stars and Tampa Bay Lightning before signing in Toronto, it says.
The court document states Tavares’s signing bonus “was an inducement to sign an agreement relating to the performance of an athlete” and should not be considered as salary or wages.
“The signing bonus was consideration for Tavares — a uniquely skilled and sought-after unrestricted free agent — committing to the seven-year contract with the Toronto Maple Leafs,” it states.
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The appeal argues Tavares was eligible for the reduced rate of 15 per cent under a Canada-US Tax Treaty provision that sets lower rates for inducements paid to artists, musicians, actors and athletes.
The appeal also states the bonus amounting to US$11.4 million after deductions was deposited into Tavares’s New York City bank account and says Tavares spent 45 days in Canada from Sept. 13 to Dec. 31, 2018.
The appeal states that, under the Income Tax Act, “signing bonuses are only included in income to the extent that they can reasonably be considered to be attributable to services performed in Canada.”
In total, Tavares’s deal includes US$70.89 million in signing bonus money and US$6.11 million in base salary. The appeal states bonus money differs from salary because it’s payable regardless of whether he plays, is traded, sent to the minors or injured, or there is a labour dispute.
The claim has not been tested in court.
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