A court battle between the CRA and the Toronto Maple Leafs captain could be pivotal for other pro athletes

Toronto Maple Leafs captain John Tavares is taking the Canada Revenue Agency to court over an $8 million tax bill in a case experts say could be pivotal for some pro athletes, perhaps affecting with which teams they sign.

The NHL star has filed an appeal to the CRA over the bill for back taxes and interest, dating back to 2018 when he signed a $77 million US contract to play for the Leafs.

"It's a pivotal case and everyone will be watching," said Richard Powers, an associate professor at the University of Toronto's Rotman School of Management.

At issue is a $15.25 million US signing bonus which, under the U.S.-Canada Tax Treaty, Tavares says should be taxed at a much lower rate than the rest of his salary. The CRA disagrees.

Players throughout the NHL use signing bonuses as a way to structure their contracts so they have a limited tax liability and to spread out the value of the contract. Tavares's first year of his seven-year contract saw him receive a total of $15.9 million US. Only $650,000 US of that was his actual salary. The rest was his signing bonus. 

The court documents show the CRA believes the entire compensation package should be treated as salary and taxed the same way.

"It's an uphill battle when fighting the CRA," said Rob Kreklewetz, a tax lawyer with Millar Kreklewetz LLP, who is not involved in the case. "The burden of proof shifts to the taxpayer to disprove whatever the CRA has assumed." 

Tavares's notice of appeal says the bonus "was an inducement to sign" and not "salary, wages or other remuneration" under the terms of the treaty.

The court filings, making a key argument in the case, say the bonus was payable "regardless of whether" the Leafs played him, traded him, if games were cancelled by a