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Maple Leafs GM vs CRA Tax Court Ruling: Canadian Tax Lawyer Guide

Published: May 17, 2021

A Tax Court judge ruled in favor of former Toronto Maple Leafs GM against the Canada Revenue Agency – guidance from a Canadian tax lawyer on special tax rules with professional athletes’ contracts

Former Toronto Maple Leafs GM won his battle against the Canada Revenue Agency (CRA)

Dave Nonis, the former GM at Toronto Maple Leafs has recently won a battle against the CRA as the tax court judge found the CRA’s position to be absurd. Mr. Nonis, who grew up in Burnaby, British Columbia, was hired as the Toronto Maple Leafs’ GM in 2013 and held that position until April 12, 2015 when he was fired from the position. Since then, he has always stayed in the U.S. and considered himself a US. resident for tax purposes. During his employment with the Maple Leafs, he filed tax returns in both Canada and US, and paid Canadian income tax prorated based on the number of days he spent in Canada each year.

His employment contract with the Maple Leafs said that he would be guaranteed continued salary benefits for the balance of his contract and one year of medical coverage if he was terminated without cause. After he was let go of the team, Mr. Nonis used the same formula he used in 2013 and 2014 to file his 2015 and 2016 tax returns, and reported 37 days in Canada in 2015 and 0 in 2016.

CRA argued Mr. Nonis’ salary continuance should be taxed in the same manner as a signing bonus

The treatment of signing bonuses went through some changes in the past. Initially, when a US resident received a signing bonus before their arrival to Canada for a Canadian sports team, the total amount of bonus would not be taxable income earned in Canada even though relevant, related and reflective of the expenditure of effort and services to be performed in Canada. However, there was an amendment to the Income Tax Act in 1981 that added a special rule to deal with certain professional athletes’ contracts who can receive large signing bonuses but relatively smaller annual salaries paid thereafter. This new rule made signing bonuses subject to proration formula used for the season and taxable in Canada. The athlete may find some relief from Canadian tax under a tax treaty. For instance, the Canada-US Tax Treaty generally allows Canada to tax US athletes on income earned from a performance in Canada. But this rule doesn’t apply to the employment income of an American athlete who competes in a league with regularly scheduled games in both Canada and the United States (e.g., Major League Baseball players, NBA and National Hockey League players). For those athletes, the Canada-US Treaty applies a 183-day test: The non-resident athlete pays Canadian tax on his or her employment income only if his or her presence in Canada exceeds 183 days in that year. So, whether a non-resident league athlete pays Canadian tax generally depends on whether he or she is employed by a Canadian- or US-based franchise.The tax dispute with the CRA mainly focused on whether Mr. Nonis or used an appropriate proration formula for his 2015 and 2016 tax years specifically for the period of time after he was fired and returned to the US. The CRA’s position was that the tax treatment associated with his salary continuance should be treated the same way as a signing bonus. The CRA also argued that Mr. Nonis should have used the historical proration method that he used in 2013 and 2014 which was about 39% as a reasonable allocation to allocate his continuance income to Canada for the years of 2015 and 2016. Mr. Nonis disagreed and appealed to the Tax Court of Canada.

The Tax Court judge sided with Mr. Nonis because Mr. Nonis has been almost living exclusively in the US since he was let go by the Maple Leafs. The Tax Court judge also mentioned the CRA’s logic would lead to an absurd conclusion that all non-residents terminated with salary continuation would be taxed on that income “despite the clear, undisputed cessation of any services preformed in Canada because of an irrevocable departure from Canada”.

How does Canada tax non-employee athletes

Under the Income Tax Act, a non-resident athlete who is an employee must file a Canadian income tax return to report all salaries, services rendered and performance related bonuses to the Canada Revenue Agency. If the non-athlete received a signing bonus to perform in Canada, the athlete must report the bonus to the extent that the payor claimed the bonus as a deduction on the payor’s Canadian income tax return. The Canada-US tax treaty generally provides some relief from Canadian tax. For example, although the Canada-US tax treaty allows Canada to tax US athletes on their income earned from their performance in Canada, it doesn’t apply to the employment income of an American athlete who plays in a league with regularly scheduled games in both US and Canada such as the NBA or NHL or major-league baseball.

Pro tax tips – non -resident athletes should seek professional tax advice  

Overall, a non-resident athlete still has an obligation to file a Canadian tax return and there will be interest and penalties if they fail to do so. Therefore, a non-resident athlete should always seek professional guidance from an expert Canadian tax lawyer to make sure he or she fulfills her filing obligations in Canada and claims the foreign tax credits to avoid double taxation if possible. For professional tax advice, contact our office to speak with an experienced Canadian tax lawyer for help.


"This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."

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