John Tavares of the Toronto Maple Leafs is honoured for his 1000th NHL point prior to action against the New York Rangers in an NHL game at Scotiabank Arena on Dec. 19, 2023 in Toronto.Claus Andersen/Getty Images
Rob Kreklewetz is a tax lawyer with Millar Kreklewetz LLP.
Toronto Maple Leafs hockey star John Tavares has been in the news lately, but not for his play.
He is in a fight with the Canada Revenue Agency over how much tax he ought to have paid in 2018 on his $20-million signing bonus with the Leafs. I pulled and read his Notice of Appeal in the Tax Court of Canada – mainly because I am a tax lawyer by trade and this is what you do when you are a tax lawyer by trade, you read legal things that look mildly interesting.
At issue with the CRA is how Mr. Tavares had structured his compensation. The structure has less of the compensation as salary and more of it as a bonus, so that Mr. Tavares could pay less taxes.
It’s a common structure for players in the National Hockey League. But now the CRA wants a bigger cut. It is saying that, regardless of the structure, all of Mr. Tavares’s compensation is salary and should be taxed at a higher rate.
It is beside the point whether you sympathize with Mr. Tavares (a great number of us might not, particularly as we toil though our mundane lives earning incomes far less than his one-year bonus on a contract worth about $100-million). Mr. Tavares’s case underscores a wider problem: For a long time, domestic NHL teams have been at a disadvantage to their U.S.-based counterparts, who have been able to better attract players because they are in lower-tax jurisdictions.
And this is a disadvantage that all industries face. It is a disadvantage that follows directly from Canada’s current income tax system, and one of a number of really disastrous hidden consequences that all Canadians need to wake up to.
First this is an income tax system that is driving many of Canada’s current problems.
Hockey fans, do you wonder why the last Canadian NHL team to win the Stanley Cup was the 1993 Montreal Canadiens? Boomers, do you wonder why it is that you or loved ones are waiting so long for specialist appointments? Parents, why is it that there is a shortage of trained pediatricians in Canada today? Why is it that the Canadian economy is always lagging the U.S. economy and our loonie is perennially 30 per cent lower than the value of the U.S. greenback, making our out-of-Canada vacations so expensive?
The answers are all connected to Canada’s “progressive” tax system.
While Mr. Tavares’s 2024 top marginal rate in Ontario is now about 54 per cent, top marginal rates are high for the middle classes. Here, I am not just talking about the doctors and the lawyers of the world. What follows applies to anyone that has worked all their lives to get ahead, but still finds themselves barely meeting the cost of living. Business owners. Electricians and plumbers. First responders and nurses. Teachers and scientists. Engineers and innovators. Many of these folks will pay top marginal rates of 43 per cent to 48 per cent.
But wait there is more. Pay 48 per cent tax on your last $100 of income and you take home $52. But spend that $52 and you have to pay additional GST/HST. Your $52 is really only worth about $45 if you actually want to spend it.
Jack Mintz, an economist that people quote when trying to look smart, says that, “Canada has one of the highest personal tax burdens … among OECD countries.”
Business leaders have been saying this for years: Our income tax rates are immorally high and are causing people like Mr. Tavares (and Canada’s best and brightest) to either move away or stay away.
Want a competitive hometown NHL team? Want access to your own family doctor? Want quick access to medical care when you really need it? Want a Canadian economy that will give your child a good job and the an opportunity at the “Canadian dream?” Well, first we need a system of taxation that allows for that.
Yes, Canada needs income tax reform. While the rest of the world has been lowering income taxes in favour of consumption taxes, Canada is going the other way.
If Canada significantly reduced personal income taxes, Canadians would be able to save money for our first homes or for a university education for our children or for our retirements.
When we spend that money, why not let Canadians spend on essentials such as clothing without being taxed any further by the GST/HST? Yes, when we spend the money on non-essentials, for sure, apply that GST/HST, maybe even at a higher rate.
This is the system in Britain and in Europe: Relative lower personal income taxes and relative higher consumption taxes. Why is Canada chronically playing catch-up?
Lower personal income taxation and Canada will attract back the best and the brightest – and the most athletically gifted.
Editor’s note: A previous version of this article incorrectly stated that essential food purchases are subject to GST/HST. This version has been updated.