The NHL trade deadline is an exciting, stressful and nerve racking day. Players, spouses, parents, children and agents are all on edge, refreshing their emails, staring at their phones and trying to keep up with the latest news. But not only is it stressful to those on the ice, but their tax advisors must also be ready for any breaking news.
Some players have the opportunity to go from a worst to first-place team.
Some players have to uproot their family and relocate half way across the country.
Some players have no-trade clauses in their contracts. Not only do they have to consider what it means from an on- and off-the-ice logistics standpoint, but what does this trade do to their pocketbooks?
Aside from the number crunching that will ensue, tax advisors will undoubtedly have to deal with the ever- present question of “what country will you be a resident of for tax purposes?” And your residency can be a significant determinant in calculating the amount of taxes paid.
The Canada Revenue Agency (“CRA”) has published guidelines for assisting individuals in determining whether or not they are residents of Canada or have ceased their residency in Canada.
The factors that help determine whether or not a professional athlete is a resident of Canada for tax purposes can be broken out into two categories: Significant Residential Ties and Secondary Residential Ties.
More often than not, the day you cease employment in one country and move to another can, ultimately, be a residency determination date for you. There are potentially significant tax implications on ceasing or commencing residency in one country or another. It is important to review these factors immediately to mitigate possible unwanted tax implications.
Significant Residential Ties
The most important residential ties for determining Canadian residency status are: the location of your home(s), the location of a spouse or common-law partner, and the location of your dependants during the time you are in Canada.
No one of these factors is determinative. For example, on the one hand, if you are playing for a Canadian-based franchise, but your spouse and children are living in the US, you may still be considered a resident of Canada for income tax purposes. On the other hand, if you are playing for an American-based franchise but your only home, spouse and dependants are in Canada, it is more likely that you will be considered a resident of Canada.
Secondary Residential Ties
Various secondary residential ties may also be relevant in determining whether or not you are considered a resident in Canada. These secondary ties include the following:- Personal property (such as vehicles, furniture and clothing);
- Economic ties (such as country of employment, bank accounts, credit cards and retirement savings plans in Canada);
- Driver's license;
- Vehicle registration;
- Health insurance coverage;
- Social ties (such as memberships);
- Seasonal dwellings; and
- Your passport.
Again, no one of these factors is determinative. Secondary ties must generally be considered collectively to determine whether or not they indicate Canadian residency.
As a resident of Canada, you will be taxed on your world-wide income regardless of the fact that you played for an American-based or a Canadian-based franchise.
Over the last couple of years the CRA has been more diligent in challenging the residency status of professional athletes. The determination of your residency status for tax purposes is an important discussion that you should have with your tax advisor on an annual basis.
Whether or not a player actually gets traded on deadline day, the player’s tax advisor should always be on top of his tax residency position.
This article has been prepared for the general information of our clients. Specific professional advice should be obtained prior to the implementation of any suggestion contained in this article.
