Quoting: drewjenks
Yeah I'm sure Matthews accountants are using Gavin's tax calculator to file his returns .....
He'res an "American" article from Forbes ... it clearly outlines how US born players or prior US residents (Tavares, Matthews, etc) can pay Florida tax rates.
https://www.forbes.com/sites/seanpackard/2018/07/06/john-tavares-could-save-nearly-12-million-in-taxes-on-his-new-contract/#6a0de42d1ab7
Excerpt from the article:
"Most of the time, when a player is on a good NHL team (i.e., one that goes deep into the playoffs) he is forced to become a resident of his team's town/state/country due to his extended presence there. But because so many of Tavares’ road games will be in the US, Tavares can avoid Ontario’s combined federal/provincial 53.53% tax rate by remaining a US resident.
Article XVI of the US-Canada tax treaty states that signing bonuses paid to a resident of the US by a Canadian team are taxed at 15% in Canada, and vice versa for US teams paying bonuses to Canadian residents.
Having his signing bonus taxed at the low rate of 15% in Canada ensures that Tavares would receive a full foreign tax credit on his US return for all taxes paid in Canada on both is signing bonus and his salary each season. If he plans properly, he could save over $11.7 million over the life of his contract.
Tavares is almost certainly a US tax resident and likely has been since he came to New York in 2009. In order to enjoy the full $11.7 million in tax savings he would need to maintain his residency in the US but would need to move to a tax-free state, such as Florida. This means selling his New York home and buying one in Florida.
Buying a home in Florida is not enough to become a Florida resident, especially if he is on a seven-year contract in Canada. He would need most treaty tie-breakers for residency to go to the US/Florida. Thus, he would need to avoid having a permanent abode in Canada. Simply put, he should not own real estate nor get a twelve-month lease in Toronto. Go with a nine-month lease each season. This would ensure that he would pay the 37% US federal rate on his signing bonus instead of Ontario’s 53.53%."
This took 10 seconds to find ... you suck at research. Quoting: drewjenks
Your regular salary is taxed based on region.
Your signing bonus is not.
Matthews contract is roughly 95% signing bonus ... so this doesn't really apply to him.
How nice of you to correct your author's spelling errors
Fact check, your signing bonus IS taxed by region, whether it be 15%, 53%, 37%, etc.
Congrats, you found another article. Now find me another. There's nothing else. Here's 5 that disagree with you:
https://oilersnation.com/2018/07/10/comparing-nhl-player-contracts-based-on-city/ (Oiler's pay the highest cap hit in the league (McDavid 12.5m)... Surely they know about this Canadian tax loophole too? And this article was written 4 days after yours...
"Tavares makes $11 million in Toronto and his net salary is $5.145 million, while Kucherov’s $9.5 million salary in Tampa Bay nets him $5.781 million. Kucherov still has a higher net salary playing in Tampa Bay, even though Tavares gets paid $1.5 million more in Toronto."
"Yes, it is true they get taxed on road games, so Kucherov will get taxed more on road, but that is only half his games and doesn’t really make up the difference in gap. It lessens it, yes, as I wrote above, but TB still has a big advantage over Toronto for instance."
https://www.bna.com/nhl-players-salaries-n73014470580/
https://hockey-graphs.com/2019/01/08/how-much-do-nhl-players-really-make-part-2-taxes/
chrome-extension://cbnaodkpfinfiipjblikofhlhlcickei/src/pdfviewer/web/viewer.html?file=https://www.taxpayer.com/media/CTF-HomeIceDisadvantage.pdf
https://thehockeywriters.com/inevitable-for-vegas-salary-cap-and-taxes/
I'm no tax expert but I sure know how to point out contradictions...
These are the questions I developed from reading the original article (the only one I could find until you linked me to another one)
http://www.mondaq.com/canada/x/779510/tax+authorities/Auston+Matthews+Shoots+And+Scores+Tax+Savings
1. Why does the article use his first-year salary of 15.9m rather than his 11.634m cap hit? (makes "running some quick numbers" very confusing)
2. Why does the article LIE about the percent of games Matthews plays in Canada?? "(A quick glance at the team's schedule tell us this amounts to approximately 73 per cent of players' salaries.)"
I counted myself and the Leafs play 33 times in the U.S. this season. 59.7%. NOT 73%... They plug in 73% for all their "numbers" examples, which immediately is incorrect info and makes me want to stop reading any further into this sketchy article... But I continued reading and continued to find more BS.
3. "Why is residency important? Sticking with the Maple Leafs example, players who are residents of either Canada or the United States are taxed on their entire salary in their home country."
If this is so, what about players that are residents in Sweden, Finland, Russia, or other foreign countries? How do those players get taxed?
4. "Those who are considered residents of the U.S. must also pay tax in Canada – but only to the extent of time on Canadian soil."
Matthews is an example, "he plays 73% of his games in Canada" (which is a LIE, he plays 59.7% in CA). How is he getting taxed less if he plays majority of games in the highest tax rate region?
5. "A signing bonus is defined as a sum of money paid to an employee as an enticement or incentive to join a particular organization or sign a new contract."
If that's so, how is his signing bonus BUILT INTO his cap hit? 93.7& of his $58,170,000 is in signing bonuses... That's not an incentive, that's receiving your cap hit in other methods than base salary. If the quote is legit, signing bonuses would be in addition of the cap hit... Ex: getting a 1m signing bonus in addition to a 5m cap hit contract (6m total), would be incentive to pick that deal over a 5m cap hit w/o 1m bonus.
6. "The treaty provides that a signing bonus paid by a Canadian NHL team to a U.S.-resident player would be taxable in Canada – but that tax may not exceed 15 per cent of the gross amount of the payment."
Who ends up paying the taxes that Matthews avoided? The Canadian Government? Taxes don't just "disappear".
7. "Assuming the player's U.S. tax rate exceeds 15 per cent (it does, remember the 37-50 per cent), the bonus would effectively be taxable at a combined rate equal to his normal U.S. rates. And so, there is no Canadian tax cost disadvantage on the signing bonus amount."
Wtf is a "combined rate equal to his normal U.S. rates"? What are we combining? The bonus rate (15%)? If that's the case, how can you combine that rate with the normal U.S. rates (37-51%) and expect to get the same normal U.S. rate? If you combine the rates, you'd get a 51-66% U.S. tax rate. Which IS NOT "equal to his normal U.S. rates".
8. Since all the "numbers examples" that the article uses are falsely skewed... Let me make my own example with REAL analytics, that maintains the same "tax treaty claim" rules...
Matthews cap hit is 11.634m (fact). If 93.7% of his salary is paid via "signing bonus" (10.9m), and he gets taxed 15% in CA (plays 49 games in CA), then 6.5m gets taxed in CA over this season (15% = 975k).
Since the article is unclear regarding "the bonus would effectively be taxable at a combined rate equal to his normal U.S. rates" (LOL wut), I'll assume they mean that U.S. tax rates stay the same.
In this case, since 6.5m got taxed in his 49 CA games, that leaves 4.4m to be taxed in his 33 U.S. games. Based on the tax rates of where his 33 U.S. games take place @, the average tax rate is 43.31% (43.31% = 1.905m). Add that to the 975k and you get 2.88m.
Now for the base salary (735k). We know this number is getting taxed @ the real NHL tax rates. Since 41 games are in Toronto (53.09%) & 33 in the U.S (43.31%), the remaining 8 CA games tax rates avg is 50.87%. Altogether, the average of those 3 tax rates (with the 41/33/8 factor included) is 48.94% (48.94% = 360k). Add the 360k to the 2.88m.
So, according to my math Matthew's would pay roughly 3.24m in taxes AAV, and he'd pocket 8.394m in post-tax earnings. This is better than the 5.444m (post tax earnings) that the tax calculator shows, & it's also better than Tampa's post tax earnings (7.364m) when calculating the same 11.634m cap hit.
9. If we do the same math for his 15.9m first-year salary, 15.91m x .597 (CA game rate) x .15 (signing bonus tax %) = 1.425m in CA taxes paid.
Now U.S. taxes:....................................................................... 15.91m x .403 (US game rate) x .4331 (US tax % avg) = 2.777m in U.S. taxes paid.
Now 700k base salary taxes:................................................. 700k x .4894 (avg tax rate) = 343k
Add those up and you get 4.545m paid in taxes his first year... Not 2.5m like the article claims...
SOOOO bottom line is this: Clearly the math was completely incorrect from the article. But regardless, after doing my own math... The "tax treaty claim" does indeed leave Matthews with less taxes paid than the tax calculators will show... But my first 7 questions are legit and need answers in order for this whole "claim" to even be possible.
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