- John Tavares took the witness stand Tuesday over how his 2018 Maple Leafs signing bonus was taxed
- The CRA wants $6.8 million in tax plus $1.2 million in interest on a $15.25 million payment
- Read below for why the rest of the NHL is watching this trial closely
John Tavares spent Tuesday morning under oath instead of on the ice.
The Maple Leafs centre is fighting an $8 million tax bill in the Tax Court of Canada, and the whole thing hinges on a single word. Joseph Brean of the National Post reported that Tavares was set to testify first thing Tuesday, a day after the trial opened in Toronto.
Canada Revenue Agency auditors reassessed his 2018 return, decided his income that year was $17.8 million higher than he reported, and handed him a bill for $6.8 million in tax plus $1.2 million in interest.
All of it traces to the $15.25 million Tavares collected as a signing bonus when he left the Islanders for his hometown team. The CRA calls that employment income, taxable in Canada at north of 50 percent. Tavares calls it an inducement under the Canada-U.S. tax treaty, taxable at 15 percent, which he already paid.
Crown lawyer Devon Peavoy opened by telling the judge that the term itself is the entire case:
“What is an inducement? That is the question before you. You would think that the answer to that question would be straightforward, or should be straightforward.”
Her position is not that NHL signing bonuses can never qualify for the lower rate. She argued only that these two did not.
Patrick Marleau is a party to the same appeal. He signed with Toronto in 2017 on a three-year, $18.75 million deal, and $14.5 million of that was a front-loaded signing bonus.
That structure is why the rest of the league is paying attention. Tavares’ 2018 contract was worth about $77 million over seven years, roughly 92 percent of it paid as signing bonus, with his actual salary under a million a year. Teams write big-money deals that way now, partly for the tax treatment and partly because bonuses still get paid during a lockout.
Justin Kutyan, arguing for Tavares and Marleau, pushed back on the idea the label was invented after the fact. Nobody is calling the contracts a sham, and there is no allegation of dishonesty against either player.
“We’re trying to attack the Crown’s case on all fronts,” Kutyan told the judge.
Monday’s first witness was James Nice, the agent who negotiated both contracts. He dropped one detail most fans never think about: Gary Bettman personally signs every player contract in the NHL.
Judge J. Scott Bodie has the case for the next two weeks.
