Why the “Stamkos Tax” may actually be in Toronto’s favour

Today is June 28th. Steven Stamkos is just 73 hours away from being able to sign with another NHL team, which, if the gossip holds, may very well be the Toronto Maple Leafs. But the debates continue to rage about where else he could head. Will he take the Buffalo Sabres’ likely massive offer? Will he take the winning past of the Detroit Red Wings? Will he be another New York Rangers victim of July? 

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Many feel he’ll end up staying in Tampa Bay. You’d think he’d have signed at this point if that were the case, but most feel that he’ll give in due to their silver bullet; their tax benefit. But what if I told you that there’s a good chance that the benefit doesn’t actually exist?

From the Tampa Bay Times:

Stamkos’ hometown Maple Leafs, due to a 53.53 percent provincial/federal tax code, would have to offer him $12.37 annually over seven years to net the same as he’d make over eight years at $8.5 million in Tampa, according to national tax guru Robert Raiola. Quebec (53.31), where Montreal plays, has almost the same combined tax rate as Toronto (53.51%), British Columbia (where the Canucks play) is (47.7%)

Of course, there’s a gigantic logical fallacy here, in the sense that it assumes that an eight-year offer with slightly more money is better than a seven-year offer. Steven Stamkos is 26 years old. Steven Stamkos will probably be able to get a good return out of the first year of his Age 33 contract. As much as this contract? That depends on league revenue growth (Leafs cup runs could help), but certainly, enough that he’ll eclipse a Tampa offer under this logic, barring a career ending injury.

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From The Globe and Mail, 2014:

“You cannot reduce your tax burden if you are a Canadian resident working and living abroad,” says Allan Madan, a chartered accountant and tax expert in Toronto.

Cleo Hamel, a senior tax analyst with H&R Block, says many Canadians only realize their mistake years after departing the country. Many assume payment of Canadian taxes isn’t required if they live outside the country for a year.

“Most people think about the actual move or they think about the life that they’re going to lead outside of the country, without actually thinking or researching if there are any tax implications,” she said from Calgary.

From Chang and Boos’ Canada-US Immigration Law Center:

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Revenue Canada has stated that when an individual leaves Canada for a period of less than 2 years, that person will be presumed to be a continuing resident of Canada for income tax purposes. However, if the individual can establish that he or she has severed all residential ties on leaving Canada, that individual will be considered to have become a non-resident of Canada on departure, even if they do return within 2 years. If there is evidence that his or her return to Canada was foreseen at the time of departure (e.g. a contract for employment upon return to Canada), Revenue Canada will presume that he or she did not sever all residential ties with Canada.

Revenue Canada considers the following factors in determining an individual’s residential and other ties with Canada: Dwelling place (or places), spouse and dependents, personal property, social ties, provincial hospitalization and medical insurance coverage, a seasonal residence in Canada, professional or other memberships in Canada (on a non-resident basis), family allowance payments.

Stamkos is known to own property throughout the area immediately surrounding Toronto, including a recently purchased custom house built in Aurora, Ontario. This means that means that he’s in possession of a dwelling place, which he, well, presumably uses to dwell. We know for certain that Stamkos spends the bulk of his offseason in the Toronto area. It’s likely he spends breaks where he isn’t needed back home with his family and significant other. Basically, it’s all but guaranteed that Stamkos has at no point relinquished his residency in Canada, and as such, pays taxes in Canada.

From there, regardless of what type of Green Card status he lies under, it’s very likely that he’s paying US taxes as well, based on the weighted 183-day rule. But even if he’s getting out of Tampa Bay for just enough days to avoid having to pay up to the IRS as well, that’s still not a concern he has with a Canadian team.

What we’re establishing here is that there’s a good chance that Stamkos pays both Canadian and US taxes, as a Canadian citizen and resident who spends enough time in the United States to have residency for tax purposes there as well. It is worth noting that the US-Canada Tax Convention (pdf) has a specific section on Athletes, though it doesn’t apply in “respect of an employment with a team which participates in a league with regularly scheduled games in both Contracting States”.

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As a few have pointed out since publishing, this wouldn’t be a straight up double taxation; the above convention ensures he’d be able to file to the IRS for a credit given his Canadian residency. But it does ensure that his base payment is Canadian.

With this, Tampa Bay’s advantage would go away. Suddenly, Canadian teams have the playing field re-leveled for them, as they’d offer Stamkos the ability to pay his usual local tax on his home games, while swapping the road games that would have affected him with the “tax-free” Tampa Bay appearances, lowering his travelling jock tax.

With all of this said, I think we’re making too big of a deal of the importance of taxation in Stamkos’ selection of a team. It’s being sold as a driving factor solely as an excuse for Tampa Bay offering a player who doesn’t seem to be overly excited about staying a below market value deal as a courtesy. 

If taxes mattered in the way they’ve been sold to us, Newport Sports Agency, who Stamkos is a client of, wouldn’t be caught dead signing their players to UFA-year contracts in states like California, Minnesota, New York or anywhere in Canada.

Yet look at the list of Newport Clients and where some of them signed their deals. Tyler Bozak, Dan Girardi, Dan Hamhuis, Jarome Iginla, Phil Kessel, Henrik Lundqvist, Clarke MacArthur, Ryan O’Reilly, Zach Parise, Corey Perry, Dion Phaneuf, Brad Richards, PK Subban, and Brandon Sutter have all signed important contracts in “horrible” tax states and provinces. But they make up the bulk of the UFA star power at Newport.

The reality is, by the time agents fees and escrow come into play, a few percentage points of tax difference probably don’t matter all too much to players who just want to make sure they have enough to keep their families going once they’re done playing. Making more is nice, but the cap hit is more of a status symbol and an NHLPA rallying cry than a massive impactor of decisions.

From the looks of it (though I stress, I’m not an immigration accountant; just someone in search for more than the information on the surface), Steven Stamkos’ top destination as far as taxes go might actually be the Toronto Maple Leafs. Does it matter? Probably not. If the Leafs want him, they need to sell him on the culture, the team, and the plan in place, not how much work his financial advisor will have to put into his T1.

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  • Colt Knorr

    Being a CA, I have tried to explain this to all of my friends when the Canadian tax issue comes up in free agency – for all sports including NBA and MLB.

    One thing to clarify in this article is that USA and Canada have a tax treaty for situations like this to make sure people are not unfairly double taxed.

    As you noted Stamkos is likely considered a Canadian resident so he pays tax in Canada on his world-wide income. When he does his US state and federal taxes he would get a credit for the amount of tax he has already paid in Canada and he gets a credit on his Canadian tax return for tax he has paid in the US. Essentially, he has probably been paying the combined Ontario/Canadian federal rate for his entire career already.

    There would be some overlap with the multiple state, provincial and federal taxes that he pays but it would not be double.

    And this would be the case for most of the players in the NHL because they play games in multiple countries, states and provinces.

    • I figured it was something along these lines. Not straight up double taxes, but that he’d be paying in Ontario and then a little extra involving his time spent in the US, so this makes a lot of sense if that’s the case.

    • joshschram

      I’m also an accountant and this issue is always overstated. 99% sure you get a federal credit for state income taxes paid, so the 0 state tax states supposed advantage is diminished.

      As well, if Stamkos wanted to be a Canadian resident, he’d just have to sign an 8840 form to say that your ties are closer to Canada.

      Finally, if you have a decent accountant, you should be funneling a lot of your income into a corporation for a tax deferral.

      • Jeremy Ian

        Chiming in here as another Canadian in the US. You don’t get double taxed unless you are getting bad advice, and there are many other variables you have to add to the equation, from health care to social security rates. The net discrepancy is not nearly as wide as is being made out.

        Stamkos will make his decision less on the financial packages (which are most likely not going to be as far apart as the rumour mill is pulping out) than on where he wants to play and make his career mark.

  • not_SorjeBalming

    If you look at the tax situation from a 1/2 season perspective…it seems that he would be saving tax by playing in Tampa for only 41 games…since the others are on the road. That along with the other 183 day rule might mean he is already paying higher taxes than we think even though he is in a state like Florida.

    It might end up being a much less tax difference than we were being told by the beat writers in Tampa. That being said, I also tend to believe that having USD in Canada with our cost of living offsets the tax burden as well. We don’t exactly pay 30% more for EVERYTHING up here…so there is a net gain by being paid in USD and living in Canada in my opinion.

  • joshschram

    Thanks to the author for the article and those who commented. I always thought the “tax narrative” aspect of Stamkos’ FA decision was a little too simplistic.

    • JB#1


      I’m surprised someone, from the plethora of ex-NHL players in the Toronto MSM, hasn’t stepped forward to help clarify this tax situation. They should know the details since they, presumably, found themselves in similar circumstances. Paging Jeff O’Neil….

      Bottom line about taxation.

      Each jurisdiction where you spend time is going to want to claim you as their own so they can get their pound of flesh (for taxation purposes) and you will usually end up paying at the highest tax rate of all of those jurisdictions.

      As someone said above, at this point it behooves you (if you’re making this kind of coin) to hire the high-priced tax accountants to help you legally reduce your tax burden as much as possible.

      Last I checked on General Fanager, Stamkos’ career NHL earnings, to date, are just a shade under $49 million US – not including any endorsement money he’s made. Factor in agent’s fees, taxes, etc. and you would have to think he’s got somewhere north of $20 million US stashed away – plus he’s about to sign another contract for somewhere between $70 to $84 million US.

      Not begrudging him his money as he’s definitely earned it, but he and his family, for generations to come, will be alright.

  • joshschram

    Does it really matter if your net income is $4M/year or $5M/year? It’s still an unimaginably huge amount of money that 90% of people will not make in their entire lifetime.

    Plus he’s already probably got $20M+ in the bank (or as property).

    A higher salary just hurts your team’s salary cap and lessens your chances of winning a Cup.

    I doubt anyone would notice any difference between $40M vs $50M over the next 7-8 years. What they would notice a difference of would be whether they won a Cup or not, plus how good the city is for their family.

  • Colt Knorr

    Jeff another solid article. How about our Italian brothers taking care of Spain yesterday. I had a glass or two of wine to toast the lads as it was 5:00 oclock some where to quote Alan Jackson. Now on to Saturday and the Germans.

    I tend to agree the tax situation won’t likely be the major decision factor. I’m sure Detroit moving into a new arena will throw a maximum amount of cash at Stamkos as will Buffalo.

    We shall watch with interest to see if the David Price syndrome of desiring to be the highest paid player in your sport as a pitcher prevails or will the decision be based on which club he feels is on the right track to build a power house.

    As you point out we shall indeed have the answer to Stamkos plans relatively soon. Then it is on to August 15th where we can hope that young Jimmy Vesey shows his loyalty to his brother and dad wisely signed by the new crafty leafs management.

    I got to admit I would get pleasure out of seeing the tears in the Buffalo owner once again and Kenny Holland out smarting himself. Lots of luck with the other free agents out there Kenny.

  • Colt Knorr

    Apparently suggesting that a player should just go to a city he likes and has a chance to win a Cup in, rather than chase the highest contract, is an unpopular position…