John Tavares loses legal battle on the hook for millions

More details about the ongoing dispute between John Tavares of the Toronto Maple Leafs and the Canada Revenue Agency have surfaced. The question at hand is whether or whether Tavares' sizable signing bonus from Toronto in 2018 qualified as a bonus. The decision may significantly affect Canadian NHL teams' capacity to draw well-known players.

After learning that he owed $8 million on a reassessment of his 2018 tax return, Tavares made the decision to sue the CRA in January. Of his 16.9 million salary in 2018–2019, Tavares received $15.25 million as an upfront signing bonus. Tavares argued in his court filing that the $15.25 million should not be taxed as income, but rather as a signing bonus under the Canada-US Tax Treaty at a rate of 15 percent. He claimed he would have received the money had he been hurt, removed from the team, or if there had been a labor dispute between the NHL and its union. The CRA disputes this in its reply to his court filing.

In essence, the CRA asserts that Tavares should be taxed at his regular rate of approximately 33 percent on the money as he would have been required to return a portion of it under either of those scenarios, making it an income rather than a signing bonus. There isn't a date for the hearing yet, but if Tavares loses this challenge, it might create a precedent that makes it much harder for Canadian teams to sign prominent free players.

Since players on American hockey teams like the Florida Panthers, Tampa Bay Lightning, and Vegas Golden Knights are exempt from state income tax, they already have a significant competitive edge against clubs in Canada. If this starts to happen frequently, it will only make things worse.