The Impact Of John Tavares' CRA Case On Canadian NHL Teams And Taxes

Compared to most Canadians, John Tavares makes a lot of money. The 34-year-old is in the final season of a seven-year, $77-million deal he signed with the Toronto Maple Leafs in 2018.

Before that, he collected $35.7 million from the New York Islanders over nine years. That adds up to just over $112 million in career earnings, all in U.S. dollars. But Tavares certainly hasn’t kept it all. In 2012-13, his salary was pro-rated to 48 of 82 games after the half-season lockout. And every year, regular deductions include agent fees, taxes and escrow.

When the direct deposits are that big, so are the accompanying tax obligations. That’s why the current dispute between Tavares and the Canada Revenue Agency has made headlines – and why the outcome could shake up Canada’s pro sports landscape going forward.

In November of 2022, the Canada Revenue Agency notified Tavares that it was seeking more than $8 million Cdn in unpaid taxes and interest following a re-assessment of his 2018 Canadian tax return.

The CRA says that Tavares should pay his regular income tax rate on the signing bonus he received when he first signed his free-agent contract with the Toronto Maple Leafs on July 1, 2018. The agency is claiming that it’s entitled to the payment for two reasons: because Tavares was a Canadian resident at the time and because the bonus should be taxed as regular employment income rather than under the terms of a Canada-U.S. tax treaty, which limits the Canadian tax obligation on signing bonuses for non-Canadian residents.

“John paid U.S. tax on the bonus as a New York resident,” said Tavares’ agent, Pat Brisson of CAA Hockey. “Canada wants to treat it as if it was theirs. It’s merely a question of who gets the tax. We are confident of the case and our position. But the ramifications are huge for Canadian sports fans.”

"Unless the Canada-U.S. treaty can apply, Canadian hockey teams may find it more difficult to attract the best talent." - KPMG lawyer Mark Feigenbaum

In January of 2024, Tavares’ representatives filed an appeal of the reassessment with the Tax Court of Canada. The attorney general of Canada issued a reply last May, saying that it will be some time before the outcome is determined.

Mark Feigenbaum, one member of the team of lawyers from KPMG Law representing Tavares, says, “The case relies on well-established income tax law as well as the Canada-U.S. tax treaty. Unless the Canada-U.S. treaty can apply, Canadian hockey teams may find it more difficult to attract the best talent.”

Feigenbaum also expressed concerns.

“By the government bringing forward these claims,” he said, “it may give pause to other players who are negotiating deals to play for a Canadian team.”

Tim Cestnick is the tax and personal-finance columnist at The Globe and Mail. He also provides tax planning and wealth management for high net-worth individuals as the CEO and co-founder of Our Family Office, Inc.

According to Cestnick, the proceedings of the Tavares case are being watched closely by athletes across the sports landscape, especially where signing bonuses are concerned.

“It opens up the concern for a lot of athletes,” Cestnick said, “that no matter how you structure your compensation, the CRA is going to try their best to tax you fully on whatever income you earn, rather than allowing you to take advantage of the tax treaty.”

Professional athletes who work in Canada are usually subject to higher income-tax rates than those in the United States. The amounts vary from state to state and from province to province.

A U.S. citizen or green-card holder is subject to U.S. taxes on worldwide income. But, provisions are in place to ensure that people aren’t double-taxed. In the case of professional athletes, a tax treaty that’s been in place since the 1980s dictates that athletes who play in Canada but file taxes in the U.S. are subject to full Canadian tax on their employment income but just 15 percent Canadian tax on any signing bonuses. They still pay tax on the bonus in the U.S., but they receive a tax credit equal to the amount they paid in Canada.

For Canadians, tax obligations are determined by their residency. When Tavares began his NHL career on Long Island, he became a U.S. resident for tax purposes starting on Jan. 1, 2010, midway through his rookie season. After signing with the Maple Leafs, he filed his taxes for 2018 as a resident of New York State, because he was an employee of the Islanders for the first half of the year and spent more than half of the year outside Canada. He didn’t take up residency in Toronto until Sept. 1.

If an athlete’s only professional goal was to keep as much take-home pay as possible, playing for a team located south of the border would nearly always be to their advantage. But remember Tavares’ approach to unrestricted free agency during the summer of 2018? He had options.

The Islanders, who made him their captain in 2013, very much wanted him to stay – and were the only team that could offer him an eight-year term to re-sign. He also had other suitors. Between 2013 and 2019, the NHL allowed a multi-day window for agents and teams to talk contract with each other ahead of July 1. During the last week of June, Brisson and Tavares heard pitches from six organizations at the CAA Hockey offices in Los Angeles: the Islanders, Maple Leafs, Boston Bruins, Tampa Bay Lightning, San Jose Sharks and Dallas Stars.

The Mississauga native had five concrete options available to remain Stateside. But he chose Canada. The announcement was accompanied by the famous image of young John, asleep in his Maple Leafs bed sheets. It perfectly captured the non-financial considerations that players prioritize in their signing decisions.

Tavares decided that he wanted a chance to chase a Stanley Cup with his hometown team. For others, anything from weather to lifestyle to reuniting with an old teammate or coach to a promised role or opportunity can be a deciding factor.

But even when a player inks a life-changing deal, he’d be naive not to consider the tax implications. For example, U.S. personal-income tax rates are highest in California. However, the opportunity to live largely unrecognized while wearing shorts and flip-flops to work offers considerable appeal to players who sign with – and often stay with – the Los Angeles Kings, Anaheim Ducks and San Jose Sharks.

Elsewhere, six NHL teams now operate in jurisdictions with no state income tax above the U.S. federal withholding. In the past few years, that number has grown to just one fewer than the number of clubs in Canada, as the expansion Vegas Golden Knights (Nevada) and Seattle Kraken (Washington) joined the Dallas Stars (Texas), Nashville Predators (Tennessee), Florida Panthers and Tampa Bay Lightning (both Florida).

Four of the past six Stanley Cup champions have been no-state-tax teams. Some observers believe that those organizations have built stronger rosters thanks to a smaller tax burden on the players, allowing them to make the same take-home pay they’d get elsewhere at a lower cap hit to the team.

The salary cap has been in place since 2005-06. But the first team from a no-state-tax jurisdiction to capture a championship in the cap era was the Lightning, in 2020. It’s not yet clear whether this is a cause-and-effect trend, a coincidence or possibly a unique situation that was amplified by the suppression of salary-cap growth in the wake of COVID-19.

And while higher-tax Canada is now at 31 years and counting since the Montreal Canadiens brought home the country’s most recent Cup in 1993, the Edmonton Oilers came within a game of reversing that curse last June. The Oilers also reached Game 7 of the final in 2006, as did the Calgary Flames in 2004 and the Vancouver Canucks in both 1994 and 2011. A bounce or two along the way could have dramatically altered the narrative that Canadian markets can’t breed Cup-winners.

Related: North Power: All Seven Canadian NHL Teams Are Pushing For A 2025 Playoff Spot

When Tavares chose to sign in Toronto, he knew he’d be playing in the fishbowl of the world’s most intense hockey market. He also knew he'd bear a higher tax burden than in New York. And in Years 2 through 7 of his deal with the Leafs, after he had re-established Canadian residency, he paid full freight on his entire salary and annual signing bonuses – at a rate of more than 53 percent in Ontario.

When Tavares filed his taxes as a resident of New York State at the end of 2018, he paid U.S. federal and (New York) state taxes on both his 2018 salary and the signing bonus. The rate was 46 percent. Then, a tax credit was applied for about $2 million, equal to the remittance that the CRA received.

The tax treaty, which has been in place since the 1980s, allows non-resident professional athletes to be taxed at a lower rate in Canada for their signing bonuses – a provision that was designed to help level the playing field for Canadian sports teams to attract and sign players from south of the border.

"We are confident of the case and our position. But the ramifications are huge for Canadian sports fans." - CAA Agent Pat Brisson

On May 21, the office of the attorney general issued its reply to Tavares' appeal. That’s also a public document. It asserts that Tavares’ bonus amount should have been treated as regular income, as there is language in the contract that states he would not receive the full amount if he did not fulfill the terms of the contract through situations like voluntary retirement or refusing to report, practise or play for the team.

The CRA is also asserting that, for tax purposes, Tavares was a Canadian resident in 2018. That will give them a second potential angle for winning the case. And while Tavares’ reps assert that he did not leave New York and re-establish his Canadian residency until Sept. 1, 2018 – and was only actually in the country for 45 days during those four months – the CRA has language that can side-step whether or not a taxpayer is deemed a resident by being in the country for more than half the year, based on circumstances of their determination.

In six months, Tavares will have the opportunity to test free agency again. Between court backlogs and the slow pace at which the wheels of justice spin, it’s highly possible that this case will still be unresolved come July 1.

That could add a layer of uncertainty for him. But so far, even as players and agents have waited to learn the outcome of this case, stars like Leon Draisaitl and William Nylander have signed big contracts to remain with Canadian teams. Another Canadian even came home last July when Alberta-born Jake DeBrusk elected to leave the Boston Bruins and sign a seven-year deal with the Vancouver Canucks.

Every individual’s circumstances carry with them unique wrinkles. Chris Tanev said that because he had played for Canadian teams for almost his entire NHL career, it was actually beneficial for him to choose Toronto in free agency rather than accept an offer to stay with the no-state-tax Dallas Stars.

If the appeal from Tavares and his camp is successful, it will strengthen the established precedents for both Canadian residency and the tax treatment of signing bonuses for NHLers and other professional athletes working in Canada. If the CRA prevails, the impact will be strongest if the agency establishes that the standard language used for signing bonuses does not allow for the 15 percent tax-treaty rate and should be taxed as full income. Stay tuned.

For a deeper look into the world of the hockey business, including Q&As and the Top 100 People of Power and Influence, check out The Hockey News' Money and Power 2025 issue, available at THN.com/free.