Allan Lanthier: Canadians want the Stanley Cup back in Canada. The CRA? Not so much
The more you look at the Canada Revenue Agency’s case against Toronto Maple Leafs captain John Tavares, the more concern it raises.
It’s more than three decades since the Montreal Canadiens defeated the Los Angeles Kings four games to one to win the Stanley Cup in 1993. Since then, Canadian teams have only made it to the final six times — all in losing efforts. One reason is Canada’s exorbitant personal tax rates, which make it hard for Canadian teams to sign star players. Recent challenges by the CRA may make that task even more daunting.
Canadian tax rates are among the highest in the world, topped by only four other OECD countries. For example, an Ontario resident pays 53.5 per cent on income above $250,000. The top U.S. federal rate is only 37 per cent. Additional state tax may apply, but nine states levy no personal tax at all.
For years, Canadian teams have used two plans to reduce the tax hit on players: signing bonuses and “retirement compensation arrangements.” The CRA is now attacking both.
Under the Canada-U.S. tax treaty, the tax rate on an inducement to sign an athletic agreement — a signing bonus — cannot exceed 15 per cent. To qualify, a player must be a U.S. tax resident and have a home in the U.S. while renting a place to stay in Canada during the season. But the CRA has now assessed Tavares for more than $8 million in tax and interest on a signing bonus he received to play for Toronto.
Its decision to do so is odd. After receiving the first instalment of the signing bonus — the one payment in dispute — Tavares moved to Toronto and therefore pays Canadian tax at 53.5 per cent on every other penny the contract pays him. And the CRA itself issued an interpretation letter in 1998 confirming the 15 per cent
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