- The amount stems from a $15.3 million signing bonus Tavares received upon joining the Leafs in 2018
- The Leafs captain has taken the case to court, claiming the bonus should not be considered a salary
- Tavares may not re-sign with the Leafs if the court rules against him
John Tavares’ future with the Toronto Maple Leafs now hangs in the balance as he is currently involved in a tax dispute with Canadian authorities.
The Leafs captain recently filed an appeal in the Tax Court of Canada after he was ordered by the Canada Revenue Agency (CRA) to pay $8 million in taxes arising from a US$15.3 million signing bonus he received from the Leafs when he joined the team in 2018.
$15.3M Signing Bonus Should Not be Considered Salary
Tavares is seeking to have the CRA’s reassessment of his 2018 tax return annulled, arguing that the agency incorrectly calculated his taxes. Tavares, an NHL star player, signed a seven-year $77 million contract with the Leafs in July 2018 after becoming an unrestricted free agent upon the end of his contract with the New York Islanders.
The Leafs deal came with a US$15.3 million signing bonus which “was integral” in Tavares’ decision to join the team, the appeal says.
The CRA claims that the Leafs captain’s income for 2018 was $17.8 million higher than reported, making him liable to an additional $6.8 million in taxes plus $1.2 million in interest.
In his appeal, Tavares argues that the signing bonus he received in 2018 constituted an “inducement” to convince him to sign with the Leafs and should not be treated as salary or wages. The 33-year-old Mississauga, Ontario native argues that he would still be entitled to the bonus in the event of a trade or an injury.
The signing bonus must therefore be taxed at only 15%, as part of a Canada-US taxation treaty, and not 38% as imposed by the CRA, the appeal says. The agency has yet to file a response to the appeal.
Future Impacts of Tavares’ Tax Dispute
Tavares’ case could set a precedent for how Canada’s tax authorities deal with expensive players. It could also impact future decisions by professional sports franchises based in the country, particularly in terms of offering huge signing bonuses to top players.
Should Tavares lose the legal battle, it might deter him from signing a new contract with the Leafs when his existing contract expires in 2025. His $77 million payout is mostly structured as a bonus. His annual salary only accounts for less than $1 million.