Written on behalf of Feigenbaum Consulting
A few weeks ago we blogged about tax considerations for professional athletes playing in the U.S., this week we discuss tax considerations for professional athletes who play in Canada.
Non-Resident Athletes Playing for Canadian Teams
Under s.2(3) of Canada’s Income Tax Act, non-resident individuals can be taxed by the Canada Revenue Agency if that individual has:
- Been employed in Canada;
- Carried on a business in Canada; or
- Disposed of a taxable Canadian property.
This applies to non-resident (e.g. American or other) professional athletes who play for Canadian sports teams, such as Americans, Swedes, Russians, Cubans and other foreign nationals who play for Canadian NHL, NBA, MLB, MLS, or other professional teams (e.g. Maple Leafs, Senators, Oilers, Flames, Canadiens, Jets, Canucks, Raptors, Blue Jays, Toronto FC, Vancouver Whitecaps, and others).
Requirements for Non-Residents Playing for Canadian Teams
All non-residents must pay Canadian tax on any income earned in Canada at the applicable tax rate (see below).
For professional athletes who play on teams who have games in both Canada and the U.S. (this would include most major league sports), this means they pay Canadian taxes only on income earned during games played in Canada.
Professional athletes must therefore file Canadian tax returns are report their:
- Signing bonuses and other bonuses;
- Canadian endorsement deals;
- Investments in Canada;
- Real estate in Canada; and
- Any other income earned in Canada.
In addition to paying tax on this income, Canada does not permit deductions from employment related expenses, which for professional athletes can include things such as agent fees or costs incurred during training (for equipment, mileage, etc.).
Canadian Tax Brackets
In 2018, federal tax brackets in Canada were as follows:
|$46,605 or less||15%|
|$46,605 to $93,208||20.5%|
|$93,208 to $144,489||26%|
|$144,489 to $205,842||29%|
|$205,842 or more||33%|
Most professional athletes would fall into the last category above, and thus would be taxed at the highest tax rate.
Other Considerations for Athletes
Professional athletes are in a unique situation. In addition to making income in both Canada and the U.S. (and, in the U.S. in multiple states, all of which charge different levels of “jock tax”), athletes earn significant income at the highest tax rate, but for a finite period of time.
All of these factors come together to create a very specific situation that many other income earners do not have to consider. Strategic wealth management and tax planning becomes incredibly important in order for these athletes to be able to enjoy a steady income for many years, including after their playing days are over.
How Can Feigenbaum Law Help?
Professional athletes who play on teams with games in both Canada and the U.S. have complex tax planning requirements. Tax issues for pro hockey, basketball, baseball and other players should only be managed by professionals with significant knowledge of cross-border tax issues and significant experienced advising professional athletes.
Obtaining advice from such a professional can significantly reduce liability and potential problems, such as double taxation, or penalties or fines for non-reporting or non-compliance.
At Feigenbaum Law we have been helping professional athletes as well as agents, coaches, and business managers with tax matters and related issues for many years.
Our principal, Mark Feigenbaum, has a special interest in taxation of professional athletes and has focused a large part of his practice on this niche area of law. Mark holds a Masters of Laws (LLM) degree in Entertainment, Media and Sports Law, and a Doctorate in Law (JSD) focusing on the taxation of sports and entertainment professionals.
The talented team at Feigenbaum Law strives to make complex tax matters straightforward and effortless for athletes and their management teams. We do all the heavy lifting ourselves, so that players can focus on what they do best.
To learn more about how we can help, contact us or call us at (905) 695-1269/toll free at (877) 275-4792.