Canadian NHL teams often face an uphill battle in retaining and attracting top talent due to the higher taxes compared to U.S.-based teams. With U.S. teams often benefiting from lower or no state income tax, Canadian franchises can lose out on players who opt to keep more of the money due to them in their contracts. And, fighting the Canadian Revenue Agency (CRA) in Canada can be a chore players don’t want to take on. John Tavares’ ongoing $8-million tax dispute with the CRA is just one example.
In a rare situation that gave a Canadian team an edge, the Toronto Maple Leafs signed Chris Tanev, who cited tax considerations as a factor in his decision to come back to Canada.
Tanev Got a Rare Tax Benefit by Returning to Canada in Free Agency
Tanev signed a six-year, $27 million contract with the Maple Leafs this offseason. While tax breaks weren’t the sole reason for his decision, he admitted that avoiding a specific tax played a part in his choice to come to Toronto. David Alter of The Hockey News dug deeper into this situation, highlighting Tanev’s reasoning during a media call.
Tanev explained, “You do have the lower state tax there, but I’ve played in Canada for 14 years. I’m from here, and my wife’s family is from close to here. There’s also a tax when you leave Canada to become a U.S. citizen—there’s a departure tax to leave Canada.”
The tax he’s referring to is known as a “Deemed dispositions” tax, which is a tax event that occurs when someone dies or permanently leaves Canada.
What Is The Deemed Dispositions Tax?
According to the Canadian Revenue Agency (CRA):
“If you ceased to be a resident of Canada in the year, you were deemed to have disposed of certain types of property at their fair market value (FMV) when you left Canada and to have immediately reacquired them for the same amount. This is called a deemed disposition.”
The CRA further explains how to avoid penalties, noting that if someone re-establishes Canadian residency, they can elect to “unwind” a previous deemed disposition.
In practical terms, this means that if Tanev had left Canada permanently, he could have been subject to taxes on any capital gains from his assets. This includes houses, business, investments, and other assets he may have accumulated while in Canada. This was a significant consideration for Tanev, who wanted to avoid the financial burden of the deemed dispositions tax. When you’re talking about more than $46 million in career earnings up to this point in his career, those taxes can add up.
Coming To the Maple Leafs Was Not Just About a Tax Incentive
However, Tanev emphasized that his decision was not solely based on tax implications. “That plays a role in it, and family reasons and obviously coming to a good team is a big part of that,” he said. “I didn’t want to leave Dallas and go to a team that wasn’t trying to win. That’s a huge reason why this happened.” In other words, he could have chosen any Canadian team and gotten the same incentive. He chose Toronto.
For fans wondering if this is something that could affect other athletes coming from the United States to Canada, Alter points out that Tanev’s situation is rare. Tanev, nor his wife, had no previous ties to the U.S. and he’d spent his entire career in Canada up to the point he went to Dallas. There are other Canadian-born players, but his particular set of circumstances, when you factor in the amount of money he’s being paid, don’t come along all that often.
Either way, the Leafs got their guy, Tanev joined a team he feels can win, and he saved some money in doing so. As for the other tax complications that come with playing in a Canadian market, those still exist and may exist for some time.
