Toronto Maple Leafs star forward John Tavares was in a face-off of a different kind Tuesday, taking the stand in a tax court appeal of an $8 million bill from the Canada Revenue Agency over his signing bonus to join the team.
Tavares gave a minute-by-minute account of the tense negotiations in 2018 that brought the then-captain of the New York Islanders back to his hometown, in a case observers say could impact the ability of Canadian teams to attract sports talent from south of the border.
“I just hope to prove what the contract was all about and the intentions in signing it and everything that went into it. So, overall, you just hope everything you know can work out in my favour,” Taveres said in a brief scrum with reporters outside the courtroom.
Tavares ultimately signed a $77-million deal, of which just over $15 million was a signing bonus, he said.
Tavares paid taxes to the U.S. on the signing bonus, at 15 per cent, the court heard, when he was still in New York and he and the team considered the payment an inducement, according to a Canada-U.S. tax treaty.
But in 2022, the CRA reassessed the hockey player’s tax filing and claimed he owed $6.85 million in tax, plus $1.2 million in interest.
The CRA said that the $15 million payment was paid out over several years and also came with strings attached, making it more like employment income, which would be taxed at a higher rate in Canada.
“What’s behind this case is how you treat the signing bonus—is it normal wages, or is it something distinct and different?” Tavares’s lawyer, Justin Kutyan, said.
In court, Tavares recounted the negotiations behind the deal in detail, saying that as his contract was up with the New York Islanders, he was approached by several teams, including San Jose, Toronto, and Las Vegas.
Kyle Dubas, Toronto’s general manager at the time, sent him a text message just one minute after he was eligible to speak to other teams.
Tavares described one key consideration, which was the contract’s annual average value, and his “line in the sand” was the equivalent of $11 million a year.
“If you really want me, why can’t we agree on $11 million?” Tavares said, recounting what he said directly to Dubas in a call.
Dubas responded, if you take a seven-year contract at $11 million a year, you’re a Toronto Maple Leaf, Tavares said.
He responded, “Yes.”
Among the reasons he wanted that $11 million a year in a signing bonus was because such payments are protected in ways employment income isn’t, Tavares testified.
“Much of that is in a signing bonus, so it can’t be bought out, and it’s protected during a lockout,” Tavares said.
“You try to protect yourself from the unpredictability of life and sport. So as I experienced throughout the contract, we did end up having a lockout, a pandemic happened, I sustained a major injury. The importance of protecting the value of the earnings of that contract was really important to me,” he said.
The impact of this decision will be felt on Canadian teams, said accountant and tax planner Kim Moody.
“Future players, if they look at this court decision that falls in favour of the CRA, they’ll take a look at this and say, ‘Yeah, I don’t think so. I’ll sign with a United States team.’ So that’s a real challenge,” he said.
“Will this have impacts that are negative against Canadian teams? I think the answer to that is, for sure, it will.”
Despite the millions on the line in his and possibly future contracts, Tavares didn’t give any sign of stress, even joking with reporters in the hallway.
“I’d rather be at my cottage,” he said with a smile.
