Tax Laws Could Affect NHL's Canadian Teams

A Maple Leafs forward is appealing the amount of taxes he owes the Canadian government, which could spell trouble for teams north of the border.

May 2, 2024; Toronto, Ontario, CAN; Toronto Maple Leafs forward John Tavares (91) pursues the play against the Boston Bruins in the third period in game six of the first round of the 2024 Stanley Cup Playoffs at Scotiabank Arena. Mandatory Credit: Dan Hamilton-USA TODAY Sports / Dan Hamilton-USA TODAY Sports

Toronto Maple Leafs' captain John Tavares is currently in a legal battle with the Canadian Revenue Agency. The CRA re-assessed Tavares' taxes and found that he owed millions in unpaid taxes from 2018. Tavares maintains that the money the CRA is claiming is the signing bonus money the team gave him when he signed his contract with the Leafs. The money in question is somewhere around $8 million, and the implications are even larger.

Whatever decision is handed down, the ripple effect will be noticeable. For decades, the United States and Canada have agreed to a tax treaty that most NHL players contracts fell under. The treaty established a 15% tax rate on payments like signing bonuses, which is Tavares' argument against the CRA.

If Tavares is found responsible for this additional amount owed, it could spell trouble for the Canadian franchises. A huge sticking point when negotiating a contract is the net take home for athletes. Dan Robson of The Athletic wrote about how this could be greatly impacted by the decision of Tavares' case. There is one specific area that Robson focuses on.

"Tavares' contract specifies that his bonus is dependent on him playing games to the best of his ability, reporting to training camp, and keeping in good physical condition," he wrote. "If Tavares retires, withholds his services, or leaves the Leafs without consent, he breaches his contract and would be forced to repay a portion of the bonus."

The CRA is claiming that Tavares' obligations to acquire the bonus are met through his work during the season, thus making the money a payment for his services and not a bonus.

If Tavares is forced to pay back taxes to the Canadian government, the concern is that this will give more players pause before joining a team like the Maple Leafs in free agency. Canadian franchises creatively use things like signing bonuses to lower taxable salaries and give the players more money. In a league where several teams play in states with no income tax, Canadian teams are already at a disadvantage when it comes to negotiations. If signing bonuses are possibly under review for further taxing, it could be the difference between a player signing in Toronto or Florida.

The whole situation is incredibly complex and confusing. Tavares is hopeful that he won't have pay an additional $8 million, which is understandable. The Leafs are hoping this doesn't set a precedent that could affect theirs and the rest of the Canadian teams' abilities to negotiate with free agents.

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