The Canada Revenue Agency (CRA) says John Tavares owes more than $8M in tax and interest

According to a report for The Athletic from Dan Robson, Toronto Maple Leafs captain John Tavares owes over $8 million to the Canada Revenue Agency (CRA), an amount that Tavares himself argues.

The CRA contends that Tavares owes $8 million sheets while but Tavares maintains that a provision in his contract entitles him to millions in tax savings. It's an ongoing case and one that could set a precedent for pro athletes in Canada.

From Robson's column for The Athletic:

A key part in Tavares’ decision to sign with Toronto was the belief that a provision in the U.S.-Canada tax treaty commonly used by professional athletes would essentially allow him to pay a lower tax rate on a initial $15M signing bonus.

Six years later, as the Leafs’ captain enters the final year of that contract, Tavares faces an $8 million tax bill for his homecoming.

Tavares has disputed the Canada Revenue Agency’s assessment. It’s one of several ongoing cases challenging ways that pro athletes have traditionally navigated higher tax rates north of the border.

The amount owed is specific to Tavares' $15 million signing bonus, which he believes is subject to a provision in his contract entirely contrived for tax purposes.

Again from Robson:

Under that provision, a bonus paid from a team in one country to a resident of another is taxed at 15 percent to the country of the team paying the bonus. The athlete still must pay full income tax where they are a tax resident, but they are then eligible to receive a foreign tax credit for that 15 percent.

The deal Tavares signed with the Leafs in 2018 was structured so that the majority would be paid as an annual lump-sum bonus, with a smaller portion as salary.

In the first year of his contract, Tavares was given a bonus of $15,250,000 and a base salary of $650,000.

From that bonus, Maple Leafs Sports and Entertainment paid $1.75M to escrow and just over $2M to the Canada Revenue Agency — 15 percent as required by the U.S.-Canada tax treaty. Tavares then received the balance of the signing bonus — roughly $11.4 million.

As a U.S. tax resident in 2018, Tavares paid United States federal tax and New York state tax, a combined 46 percent, on the gross amount of the bonus, less escrow. The foreign tax credit then applied in the U.S. for the Canadian income tax already paid.

In total, Tavares paid roughly $5.9 million in taxes on that initial bonus.

However, in late 2022, the CRA reassessed Tavares’ 2018 tax obligation, saying​​ he owes $6,847,428 in further taxes — plus more than $1.2M in interest. That interest would still accrue if Tavares had not paid the tax bill immediately.

- Dan Robson

The CRA maintains that even though Tavares filed taxes in USA for 2018, he was actually a Canadian citizen and subject to Canadian income tax law. Tavares and his representation insist that they have been given no evidence of this claim.

Robson goes on to explain that the CRA's decision in Tavares' case could have wide reaching implications for any pro athlete who signs a contract in Canada. If the supposed 'iron clad' provision in Tavares' contract proves to be null and void, who else could be exposed in the NHL? Will players continue to sign in Canada? Or will they seek shelter in more leniently taxed NHL locales like Florida, Tampa Bay, Las Vegas, Dallas and Nashville?