Published: March 14, 2024
Last Updated: September 28, 2026
Overview
John Tavares, NHL all-star and Captain of the Toronto Maple Leafs, is used to making headlines. Since signing with the Leafs in 2018, Tavares led the Leafs to their first second-round playoff appearance in nearly two decades, as well as the only recorded loss in the NHL to former Zamboni driver David Ayres in 2020.
But Tavares’ headline-breaking appeal to the Tax Court of Canada, first filed in January 2024, piqued not only the interest of Canadian news media, but tax practitioners throughout North America as well. In dispute is nearly $7 million in taxes the CRA alleges that Tavares owes in connection with his decision to sign with the Leafs in 2018. The matter proceeded to a hearing at the Tax Court of Canada in August 2026, and this article has been updated to reflect that development.
Compensation packages paid to North American superstar athletes have been increasingly scrutinized in popular media in recent years. In 2023, MLB player Shohei Ohtani’s controversially signed a 10-year, $700 million contract with the Los Angeles Dodgers, the largest contract in professional sports history, which defers nearly $680 million in salary to pay out starting in 2034. There are unquestionably strategic reasons a team would favour paying higher bonuses or deferring salary to later years. Recharacterizing and restructuring salary payments might offer professional teams greater flexibility to finance operations in current operating years and to plan around league luxury taxes and salary caps. And as with any sensible business decision, income tax is always a consideration as well.
Tavares’ appeal represents a high-profile opportunity for the CRA to test the limits to structuring the salaries of professional athletes in Canada in court. The results of Tavares’ appeal could have lasting implications for any Canadian professional sports team and any professional athlete looking to play in Canada, and any U.S. league, player or team looking to break into the Canadian market.
This article aims to break down the circumstances giving rise to Tavares’ appeal and the law underlying both the CRA’s claim and Tavares’ defense. It begins by briefly setting out the rules concerning taxation of athletes in Canada, and the relevant provisions of the Canada-U.S.A Tax Treaty. This will be followed by a review of the facts set out in Tavares’ appeal and the legal arguments set out by his Canadian tax litigation lawyer, an account of how the matter proceeded to trial and was then adjourned, and some pro tax tips on where the case stands now.
Canadian Taxation of U.S.A.-Resident Athletes
To begin, a review of the law concerning taxation of athletes in Canada is required. This begins with the concept of tax residence. A tax resident of Canada is taxable on worldwide income pursuant to Part I of the Income Tax Act. On the other hand, a person who is a non-resident of Canada is typically only subject to tax on specific kinds of Canadian-source income. Tax residence can be distinguished from citizenship or nationality, as the applicable tests consider personal and economic connections to Canada. This can be contrasted with the U.S.A., where all citizens are subject to tax.
A person who is “employed in Canada” is subject to tax on that employment income either as a tax resident, or as a non-resident pursuant to subsection 2(3) of the Income Tax Act. Generally speaking, a person is “employed in Canada” when performing employment duties within the territory of Canada. Section 115 of the Income Tax Act supplements this rule by deeming a non-resident to be employed in Canada where employment services are rendered outside of Canada’s territory, but there is a significant economic link between Canada and that employment. Paragraph 115(2)(c.1) of the Income Tax Act explicitly deems a non-resident person receiving a “signing bonus” to be employed in Canada, and the amount forms fully taxable employment income.
Without this rule, a Canadian sports team would be able to deduct the cost of paying a non-resident athlete a bonus, and the non-resident athlete would pay no Canadian tax. Given the frequent movement of athletes between Canadian-based and U.S.A.-based teams throughout North American leagues, this rule plays an essential role in protecting the Canadian tax base from erosion.
The bonus that a U.S.A.-resident athlete receives from a Canadian sports team would likely be taxable in the U.S.A. under its domestic laws as well. To prevent double taxation in both countries, there are two principal tax regimes. First, Canada and the U.S.A. have entered into a bilateral treaty, the Canada-U.S.A. Tax Treaty, setting out rules to determine which country has the primary right to tax employment income and in what circumstances. Second, both Canada and the U.S.A. offer a foreign tax credit, so an athlete can claim a deduction for taxes paid in one jurisdiction to offset taxes in the other.
Both mechanisms are very relevant to Tavares’ appeal. To begin, Article XV of the Canada-U.S.A. Tax Treaty states that Canada maintains the right to tax U.S.A. residents on employment income where the employee is paid by or on behalf of a Canadian resident (i.e. Maple Leafs Sports and Entertainment).
So, an American sports star signing with a Canadian team would be subject to full Canadian taxation on employment income and signing bonuses. In isolation, these rules would penalize Canadian sports teams seeking to attract international talent. Broadly speaking, Canada’s marginal tax rates exceed the marginal tax rates applicable throughout the U.S.A. An American sports player could escape double taxation by claiming a foreign tax credit in the U.S.A. for higher income taxes paid in Canada. But, when taking into account the extraordinary salaries earned by many top-paid sports players in North America, the high rates of tax in Canada may disincentivize choosing to play for a Canadian sports team.
To provide relief, Canada and the U.S.A. have mutually bargained for favourable tax treatment of signing bonuses under the Canada-U.S.A. Tax Treaty. Very generally, under Article XV, Canada maintains the right to tax U.S.A. residents on employment income where the employee is paid by or on behalf of a Canadian resident. But Article XVI(4) limits Canada’s right to tax any “inducement” (i.e. a signing bonus) paid by a Canadian resident to a U.S.A.-resident athlete at 15% of the gross amount of that inducement. For that athlete, a foreign tax credit is likely available in the U.S.A. for that withholding tax, to reduce U.S. taxes otherwise payable.
This treaty-reduced rate ensures favourable tax treatment to U.S.A.-resident athletes who receive a signing bonus for agreeing to play for a Canadian sports team. It also heavily incentivizes athletes to receive a higher proportion of salary payable as a bonus, to reduce Canada’s claim to tax that salary. This rule sits at the core of Tavares’ appeal at the Tax Court of Canada.
Facts of the Appeal
The Notice of Appeal filed by Tavares’ expert Canadian tax lawyer provides a helpful summary of facts central to Tavares’ tax litigation. In 2009, Mississauga, Ontario born Tavares moved from Canada to New York City to begin his NHL playing career for the New York Islanders. Tavares subsequently became a non-resident of Canada on January 1, 2010. In 2018, after entering free agency, Tavares chose to sign a seven-year contract with the Toronto Maple Leafs and to return to Canada. Under the terms of his contract, Tavares was entitled to an annual salary of USD $650,000 for the 2018-2019 NHL season, and an annual salary of USD $910,000 for his remaining six seasons. In addition, Tavares was entitled to a total signing bonus of USD $70,890,000, with USD $15,250,000 payable on July 1, 2018, prior to moving to Canada to play for the Leafs.
On July 1, 2018, Tavares received a total of USD $11,395,792 from MLSE, owner of the Toronto Maple Leafs. That amount represented Tavares’ total signing bonus, less a 15% withholding tax of USD $2,024,438 remitted by MLSE to the CRA, and USD $1,753,750 held in escrow as required by the NHL Collective Bargaining Agreement. Tavares reported his full signing bonus on his 2018 U.S.A. tax return, and claimed a foreign tax credit for the 15% withholding tax paid in Canada on that bonus. Tavares subsequently declared that he departed the U.S. on his 2018 U.S. tax return, and filed tax returns in Canada as a resident from 2019 onward. His employment income, including his signing bonus, received from 2019 onward were fully reported and taxed in Canada.
The CRA later initiated a tax audit of Tavares’ 2018 taxation year. The CRA found that Article XVI(4) of the Canada-U.S.A. Tax Treaty did not apply to Tavares’ 2018 signing bonus, and that he was not eligible for the reduced treaty rate of 15%. As a result, in November 2022, the CRA reassessed Tavares’ 2018 taxation year and increased his taxable income in Canada by $17,771,862, resulting in total taxes payable of $6,847,428.
Tavares’ Canadian tax litigation lawyer then objected to the CRA’s assessment of his 2018 taxation year. Before that objection concluded, in January 2024, Tavares’ Canadian tax litigation lawyer appealed the dispute to the Tax Court of Canada, instead of waiting for a decision from the CRA.
Update: The Matter Proceeds to Trial, Then is Adjourned (September 2026)
Tavares’ appeal was joined at trial with a parallel appeal from former Maple Leaf Patrick Marleau, who is contesting a similar reassessment of roughly $3.8 million in disputed tax tied to the $14.5 million signing-bonus portion of his own 2017 contract with the Leafs. Both players argue their signing bonuses qualify as treaty inducements under Article XVI(4); the CRA’s position is that the bonuses are ordinary employment income.
The hearing opened on August 17, 2026 before Justice J. Scott Bodie of the Tax Court of Canada. Over the following days, the court heard testimony from three witnesses called by the taxpayers:
- James Nice, Tavares’ agent, on the 2018 free-agency negotiations and the range of competing offers Tavares received;
- John Tavares himself, who described the 2018 free-agency process in detail and, in response to a direct question from Justice Bodie, confirmed that the signing bonus and its front-loaded structure were discussed before signing, tied to present-day value and protection against a lockout or buyout; and
- Patrick Marleau, who testified that the signing bonus and its expected 15% treaty tax rate directly influenced his decision to sign with Toronto in 2017.
According to the Tax Court of Canada’s public docket for file 2024-212(IT)G, the hearing was then adjourned sine die (indefinitely, without a fixed return date) on two occasions: once prior to a scheduled sitting day on August 20, 2026, and again mid-hearing on August 25, 2026. The docket does not disclose the reason for either adjournment. Following the adjournment, the Court issued interim orders, a hearing date was fixed by order on August 31, 2026, and a case management conference was scheduled for September 3, 2026. As of this update, the most recent docket entry is a memorandum filed September 15, 2026. No judgment has been issued, and no new hearing date has been made public.
Separately, Tavares filed a new, distinct Notice of Appeal with the Tax Court of Canada on September 17, 2026 (file 2026-2121(IT)G). At this early stage, only the initial filing steps (notice, filing fee, service) appear on the docket, and the nature of this second appeal, whether it concerns a different taxation year or a separate reassessment, has not yet been made public.
The Appellant’s Arguments Before the Tax Court of Canada
Tavares has argued that Article XVI(4) of the Canada-U.S.A. Tax Treaty should apply to the signing bonus he received in 2018. His Notice of Appeal argues the signing bonus was correctly characterized as an “inducement to sign an agreement relating to the performance of the services of an athlete” which would qualify for the treaty-reduced tax rate. The Notice of Appeal rejects the characterization of Tavares’ signing bonus as “salary, wages or other remuneration in respect of an employment”, which Canada could fully tax pursuant to Article XV(1) of the Canada-U.S.A. Tax Treaty. In support, the Notice of Appeal argues the bonus was an inducement because it was payable to Tavares regardless of whether he actually played for the Leafs, or if he was injured or relegated. This is contrasted from Tavares’ yearly salary, which could be restricted or reduced based on his performance for the Leafs.
The CRA’s legal position, as later confirmed through the tax litigation lawyer acting for the CRA at the opening of trial, is that the 2018 signing bonus was not an inducement and was actually part of Tavares’ salary and other remuneration. The disproportionate nature of Tavares’ signing bonus, a total of USD $70,890,000 payable over six years, relative to his total salary of USD $5,230,000, was assuredly a factor for the CRA when making this decision. At the opening of trial, the tax litigation lawyer acting for the CRA framed the entire dispute around the meaning of the word “inducement” itself.
Tax commentators have speculated for decades on how to properly differentiate between an “inducement” and an athlete’s regular salary. Prior to this matter, there were no reported cases on the question at the Tax Court of Canada, and the CRA’s long-standing administrative positions provide little further guidance, including on whether the quantum of an athlete’s bonus is a relevant factor to be considered. But clearly, there must be a distinction beyond how parties characterize those payments under contract. Whether the ratio between Tavares’ signing bonus and his annual salary is relevant to answering this question, and whether the discussions Tavares testified to concerning lockout and buyout protection support the CRA’s or Tavares’ characterization, will ultimately be for the Tax Court to decide once the hearing resumes and concludes.
In any case, whether Tavares is victorious or not, he should not face double taxation on his income. If Tavares is successful at court, then his reassessment will be overturned. If the CRA succeeds in upholding its reassessment at court, then Tavares may be able to re-file in the U.S.A. to claim additional foreign tax credits. If the U.S.A. is unwilling to receive the puck, Tavares might invoke Article XXVI of the Canada-U.S.A. Tax Treaty, and force both the CRA and the Internal Revenue Service in the U.S.A. to find a mutually agreeable solution to avoid double taxation.
Practical Implications for Canadian Sports Teams and Cross-Border Athletes
The outcome of Tavares’ and Marleau’s appeals carries weight well beyond their own tax bills. Signing-bonus structures of this kind have become a recruiting tool for Canadian NHL franchises competing against lower-tax U.S. markets for elite free agents, and a decision favouring the CRA’s characterization could make bonus-heavy contracts materially less attractive to U.S.-resident athletes considering a move north.
Other former Maple Leafs, including Jake Muzzin, are reported to be contesting similar reassessments of their own signing-bonus structures. A ruling in this case, once issued, is likely to influence how those and future disputes are argued and potentially resolved. The NHL and NHLPA are also reported to be monitoring the case, given its implications for how signing bonuses are negotiated and structured across the league.
Because the hearing has been adjourned rather than concluded, Canadian teams and cross-border athletes currently negotiating similar bonus-heavy contracts should treat the legal question as unresolved rather than settled in either direction, and should seek tailored advice before assuming either outcome.
Takeaway
Tavares’ case remains, at its core, a dispute over a single word: whether a signing bonus tied to specific protections and payable regardless of performance is an “inducement” under the Canada-U.S.A. Tax Treaty, or ordinary employment income taxable in full in Canada. The matter has now moved from pleadings to live testimony, with witnesses speaking directly to how and why these bonus structures were negotiated, but the hearing’s adjournment means the ultimate answer is still pending.
Professional athletes and their advisors negotiating cross-border contracts with Canadian teams should watch this case closely, and should not assume the current tax treatment of signing bonuses is settled while it remains before the Court.
“At its core, this case comes down to a single word: whether a signing bonus tied to specific protections and payable regardless of performance is an inducement under the Canada-U.S.A. Tax Treaty, or ordinary employment income taxable in full in Canada. The matter has now moved from pleadings to live testimony, and the players’ evidence on how and why these bonus structures were negotiated will matter a great deal once the hearing resumes. Until then, athletes and teams negotiating similar contracts should not assume the current tax treatment of signing bonuses is settled.”
— David J. Rotfleisch, Certified Specialist in Taxation Law (Law Society of Ontario).
Pro Tax Tip: Principled Settlement Rules at the Tax Court of Canada, and What the Adjournment Means Now
At the Tax Court of Canada, all settlement offers need to be principled. In other words, a settlement must be based on a result that could actually be reached by the CRA, owing to the facts and law in play. The CRA is not entitled to compromise on the law for the purposes of settlement. As a result, there can be very little wiggle room to settle in some tax litigation cases. Where the legal issue in question is binary, such as an income and capital characterization on a single transaction, there is no middle ground to find a clear compromise.
In Tavares’ case, the issue is very binary: the CRA has asserted that his signing bonus was fully taxable in Canada, while Tavares has asserted the signing bonus was an inducement that qualified for a favourable rate of tax. These factors constrained opportunities for Tavares’ Canadian tax litigation lawyer and the tax litigation lawyer acting for the CRA to settle the matter pre-emptively, which is consistent with the matter proceeding all the way to a hearing in August 2026. Taxpayers and advisors following this case, or facing a similar reassessment of their own, should treat the adjournment as a pause rather than a resolution, and should monitor the Tax Court of Canada’s public docket for updates on when the hearing will resume, since no further public reporting exists on the reasons for the adjournment or the timing of its continuation.
FAQs
What did John Tavares appeal to the Tax Court of Canada?
John Tavares agreed to play as captain for the Toronto Maple Leafs in 2018, and under his contract, he received a signing bonus of $15,400,000 payable in 2018. As Tavares was a non-resident of Canada in 2018, MLSE withheld 15% of his salary as taxes payable to the CRA under Article XVI(4) of the Canada-U.S.A. Tax Treaty. In November 2022, the CRA reassessed Tavares’ 2018 taxation year, on the basis his total signing bonus was taxable in Canada, and Article XVI(4) did not apply. In January 2024, Tavares appealed his reassessment to the Tax Court of Canada, arguing his bonus was correctly taxed by MLSE under the terms of the treaty.
How are athletes’ employment salaries taxed under the Canada-U.S.A. Tax Treaty?
Under Article XV of the Canada-U.S.A. Tax Treaty, Canada maintains the right to tax U.S.A. residents on employment income where the employee is paid by or on behalf of a Canadian resident. But Article XVI(4) limits Canada’s right to tax any “inducement” (i.e. a signing bonus) paid by a Canadian resident to a U.S.A.-resident athlete at 15% of the gross amount of that inducement.
What happens if Tavares wins or loses his appeal?
Whether Tavares is victorious or not, he should not face double taxation on his income. If Tavares is successful at court, then his reassessment will be overturned. If the CRA succeeds in upholding its reassessment at court, then Tavares may be able to re-file in the U.S.A. to claim additional foreign tax credits, or invoke the treaty’s mutual agreement procedure.
When did the Tavares trial begin at the Tax Court of Canada?
The hearing opened on August 17, 2026 before Justice J. Scott Bodie, joined with a parallel appeal from Patrick Marleau.
What happened during the August 2026 hearing?
The Court heard testimony from Tavares’ agent James Nice, from Tavares himself on the 2018 free-agency negotiations, and from Patrick Marleau on his own 2017 signing decision, before the hearing was adjourned.
Why was the Tavares trial adjourned?
The Tax Court of Canada’s public docket records that the hearing was adjourned sine die on August 20 and again on August 25, 2026, but does not state a reason. No media coverage of the adjournment has been published as of this update.
Is Patrick Marleau part of the same case?
Marleau is a party to a parallel appeal heard alongside Tavares’, contesting roughly $3.8 million in disputed tax on the signing-bonus portion of his own 2017 contract with the Maple Leafs.
Has John Tavares filed another appeal with the Tax Court of Canada?
Yes. A new, separate Notice of Appeal (file 2026-2121(IT)G) was filed on September 17, 2026. The nature of this second appeal has not yet been made public.
When will the Tavares trial resume?
As of this update, a case management conference has been scheduled and interim orders have been issued, but no new public hearing date has been confirmed.
What does this case mean for other non-resident athletes signing with Canadian teams?
The outcome will help clarify when a signing bonus qualifies as a treaty inducement rather than ordinary salary, which affects how Canadian teams structure contracts to compete with U.S. franchises for free agents. Other players, reportedly including Jake Muzzin, are contesting similar reassessments.
