The federal government is pushing back against John Tavares’ $8-million tax dispute with the Canada Revenue Agency, arguing the Toronto Maple Leafs captain is offside.
In a reply to Tavares’ appeal with the Tax Court of Canada, the Attorney General of Canada (AGC) is disputing Tavares’ ask to have the CRA’s reassessment of his 2018 tax return annulled.
The CRA, according to Tavares’ appeal filed in January, determined his 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.
The 33-year-old from Mississauga, Ont., signed a seven-year, US$77-million contract to join the Leafs on July 1, 2018. He previously played for the New York Islanders from 2009 to 2018.
The $17.8-million sum accounts for a US$15.25-million signing bonus in the contract’s first year, and “was integral to Tavares’ decision” to accept the deal, his appeal states.
The court document added 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 AGC took issue with that in its reply filed late last month.
“With respect to the entirety of the Notice of Appeal, the Attorney General of Canada (AGC) denies that any amount referred to as a ‘signing bonus’ was a signing bonus or an inducement payment,” it reads in part.
Claim has not been tested in court
Tavares’ appeal argues that at the time, he was eligible for the reduced tax rate of 15 per cent under a Canada-U.S. Tax Treaty provision, which sets lower rates for inducements paid to artists, musicians, actors and athletes.
It also states the bonus amounting to US$11.4 million after deductions was deposited into Tavares’s New York City bank account, and said Tavares spent 45 days in Canada from Sept. 13 to Dec. 31, 2018.
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,” his appeal added.
In total, Tavares’s deal includes US$70.89 million in signing bonus money and US$6.11 million in base salary. Tavares appeal states bonus money differs from salary because it is payable regardless of whether he plays, is traded, sent to the minors or injured, or there is a labour dispute.
The AGC disputed that claim, saying the contract specified Tavares would only be entitled to retain a “pro rata portion” of the signing bonus earned up until the date of a contract cut off, and would need to repay the portion of the “signing bonus,” if any, that had been paid to him but to which he was not entitled.
The AGC added in its reply the US$15.25-million signing bonus was paid on or around July 3, 2018, by Maple Leaf Sports and Entertainment (MLSE) — a Canadian corporation under federal tax law. It cited the NHL Collective Bargaining Agreement, which defines the “League Year” as starting on July 1 and running until June 30 of the following year.
“The 2018 Amount was salary, wages or other remuneration received by the Appellant in the 2018 taxation year when he was a resident of Canada. Accordingly, the entire 2018 Amount is to be included in the Appellant’s income under subsection 5(1) of the Act,” it said.
“The 2018 Amount was also deemed, for the purposes of section 5 of the Act, to be remuneration for the Appellant’s services rendered during his period of employment with MLSE under subsection 6(3) of the Act. Accordingly, the entire 2018 Amount is to be included in the Appellant’s income under subsection 6(3) and section 5 of the Act.”
Tavares’ lawyer did not return request for comment by publication time.
The claim has not been tested in court, and the Tax Court has not yet scheduled a hearing.
— with files from The Canadian Press