Blog Post

The Play Is Under Review: Maple Leafs Captain John Tavares Appealing CRA Reassessment

Toronto Maple Leafs captain John Tavares is appealing the Canada Revenue Agency’s reassessment of his 2018 income. Tavares, who received a US$15.25-million signing bonus when he joined the Leafs in 2018 – equivalent to just over C$20 million at the time – is appealing the CRA’s determination that his income for that year was C$17.8 million higher than reported, and that he now has to pay taxes, and arrears interest, on the unreported income.


For many hockey fans, the 2018 July long weekend is not remembered for the sunny skies, the cottage trips or the backyard barbecues. What many of us remember is an image – a young boy, asleep, wrapped in Toronto Maple Leafs bedding. That image, tweeted by Tavares on July 1, 2018, with the caption “Not everyday you can live a childhood dream,” astonished and elated Leafs fans everywhere.

Many wondered how the Leafs had managed to sign the five-time all-star. Indeed, Tavares had received more lucrative offers, including one from the New York Islanders, with whom he had played for nine seasons and captained for five, and another from the San Jose Sharks, which would have made him the highest-paid player in the NHL at the time, earning US$91 million over seven years.

Instead, Tavares chose to sign a seven-year, US$77-million contract with his hometown team. Though the structured financial package was not the only reason Tavares chose to sign with his hometown team, it is safe to say it certainly played a part, and likely could play a part in other major athletes joining Toronto-based and, more broadly, Canada-based sports teams.

Tavares’ Tax Troubles

Tavares’ contract was purposely structured so that he would receive US$650,000 in salary in the first season of his contract, coupled with a US$70.9-million signing bonus, including US$15.25 million payable on July 1, 2018.

Tavares argues that in 2018, when he received the first instalment of his signing bonus, he was a U.S. resident for tax purposes and, therefore, entitled to rely on Article XVI(4) of the Convention Between Canada and the United States of America with Respect to Taxes on Income and on Capital (the “Canada-U.S. Tax Treaty”). Article XVI(4) limits the Canadian tax rate on “inducements” offered to sign a U.S. athlete to 15% of the gross amount of such inducement.

For the article to take effect, the inducement must be paid by a Canadian resident to an athlete who is a tax resident of the United States (or vice versa); if a Canadian tax resident was being given an inducement by a Canadian team, the Canada-U.S. Tax Treaty would not govern. Tavares further argues that the signing bonus was an inducement and not salary, wages or other renumeration in respect of employment. Indeed, the signing bonus was still payable to Tavares whether games were cancelled due to a labour dispute or whether he was injured and could not play.

As a result, the Tax Court of Canada will have to determine whether Tavares was a resident of Canada for tax purposes in 2018. The Canada-U.S. Tax Treaty applies the definitions of each respective country. In Canada, an individual may be a tax resident in one of two ways: first, if the individual was ordinarily resident in Canada, which is known as factual residence; or second, if the individual is present in Canada in a year for 183 days or more, which is known as deemed residence.

In essence, Tavares will have to successfully convince the Tax Court of Canada that he was resident in the United States in 2018 and, therefore, entitled to the reduced tax rate under the Canada-U.S. Tax Treaty.

Tavares raises an alternative argument that in the CRA’s reassessment, it included the entire signing bonus payable to Tavares in July 2018, less the amounts which were paid to escrow per the NHL’s Collective Bargaining Agreement. Tavares contends that the signing bonus should only be included in income to the extent it can reasonably be considered to be attributable to services performed in Canada – in other words, on a prorated basis.

Tavares’ Notice of Appeal was filed on January 31, 2024. The CRA has not yet filed its reply.

Potential Impact

Attracting star athletes to Canada is difficult enough as it is, with a minority of major sports teams, a frenzied media market, higher tax rates than most U.S. jurisdictions, among other reasons. If the CRA’s reassessment holds, the tax treatment of potential inducements may further dissuade athletes from joining Toronto or other Canadian teams.

The Sports, Media & Entertainment Group and Tax Group at Aird & Berlis will continue to monitor developments in Canadian sports and tax law through 2024 and beyond. Please contact a member of these groups if you have questions or would like more information.