Toronto Maple Leafs hockey star John Tavares has been in the news lately, but not for his play.
He is in a fight with the Canada Revenue Agency over how much tax he ought to have paid on 2018 on his $20-million signing bonus with the Leafs. I pulled and read his Notice of Appeal in the Tax Court of Canada – mainly because I am a tax lawyer by trade and this is what you do when you are a tax lawyer by trade, you read legal things that look mildly interesting.
At issue with the CRA is how Mr. Tavares had structured his compensation. The structure has less of the compensation as salary and more of it as a bonus, so that Mr. Tavares could pay less taxes.
It’s a common structure for players in the National Hockey League. But now the CRA wants a bigger cut. It is saying that, regardless of the structure, all of Mr. Tavares’s compensation is salary and should be taxed at a higher rate.
It is beside the point whether you sympathize with Mr. Tavares (a great number of us might not, particularly as we toil though our mundane lives earning incomes far less than his one-year bonus on a contract worth about $100-million). Mr. Tavares’s case underscores a wider problem: For a long time, domestic NHL teams have been at a disadvantage to their U.S.-based counterparts, who have been able to better attract players because they are in lower-tax jurisdictions.
And this is a disadvantage that all industries face. It is a disadvantage that follows directly from Canada’s current income tax system, and one of a number of really disastrous hidden consequences that all Canadians need to wake up to.
First this is an income tax system that is driving many of Canada’s current problems.
Hockey fans, do you wonder why the last Canadian NHL team to win the Stanley Cup was the 1993 Montreal Canadiens? Boomers, do you wonder why it is that you or loved ones are waiting so long for specialist appointments? Parents, why is it that there is a shortage of trained pediatricians in Canada today? Why is it that the Canadian economy is always lagging the U.S. economy and our loonie is perennially 30 per cent the value of the U.S. greenback, making our out-of-Canada vacations so expensive?
The answers are all connected to Canada’s “progressive” tax system.