Maple Leafs' John Tavares Appears in Toronto Courtroom Over Battle With Government

After an extremely busy start to the offseason for the Toronto Maple Leafs, things have quieted down considerably over the last month. So any news surrounding the team will make headlines. That's the case on Tuesday as John Tavares appears in a Toronto courtroom over an ongoing battle with the Canadian taxman. 

Joseph Brean reports in the National Post that both Tavares and his former Leafs teammate Patrick Marleau are witnesses in a trial over the taxation of signing bonuses.

Specifically, the Canada Revenue Agency (CRA) says the Leafs veteran center owes $6.8 million plus $1.2 million in interest in taxes over his 2018 signing bonus when he agreed to a deal to leave the NY Islanders and join his hometown team in Toronto.

Tavares in court to dispute $8M tax bill with Canadian government

Per Brean, the CRA regards Tavares's $15 signing bonus that year as employment income, which would be taxable at over 50%. Tavares, however, says it should be regarded as an “inducement” to sign with the Leafs, and therefore was taxed in the U.S. at just 15% (which he has already paid).

Players sometimes negotiate their NHL salaries to come largely as "signing bonuses" rather than salary, "in part because of favourable cross-border tax treatment, but also as protection from lockouts, which stop salary payments but not bonuses," Brean wrote. 

Tavares signed a 7-year, $77M deal ($11M AAV) with the Maple Leafs, but his "base salary" that first season was just $650,000, with $15M coming as a "signing bonus." In fact, 92% of that $77M came as "signing bonuses" over the course of the contract. He earned $910,000 in "salary" for the last six years of the deal.

The Crown argued, in its opening remarks, that a signing bonus is not automatically an “inducement.” While some may well be, “It is just that these particular signing bonuses did not (qualify),” said Crown attorney Devon Peavoy.

The trial over, essentially, "what is an inducement?" will take place over the next two weeks.