Why the “Stamkos Tax” may actually be in Toronto’s favour
7 years ago
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?
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.
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.
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”.
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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