Behind Tanev's Unusual Tax Clause That Led Him To The Leafs – Hockey Writers – Toronto Maple Leafs

Canadian NHL teams often face a battle to retain and attract top talent due to higher taxes compared to US-based teams. Since US teams often benefit from low or no income tax, Canadian franchises can lose players who choose to keep more of the money owed on their contracts. Also, fighting the Canadian Revenue Agency (CRA) in Canada can be a difficult task that players do not want to take on. John Tavares' ongoing $8-million tax dispute with the CRA is just one example.

In a rare move that gave a Canadian team the edge, the Toronto Maple Leafs signed Chris Tanev, who cited tax considerations as a factor in his decision to return to Canada.

Tanev Receives Unusual Tax Benefit by Returning to Canada in Free Agency

Tanev signed a six-year, $27 million contract with the Maple Leafs this offseason. Although the tax break was not the only reason for his decision, he admitted that certain tax avoidance played a part in his decision to come to Toronto. David Alter of The Hockey News dove deeper into the situation, highlighting Tanev's thinking during a press conference.

Tanev explained, “You have a lower federal tax there, but I played in Canada for 14 years. I am from here, and my wife's family is from near here. There is also a tax when you leave Canada to become an American citizen—there is an exit tax when you leave Canada.”

The tax he is talking about is known as a “Deemed” tax, which is a tax event that occurs when someone dies or leaves Canada permanently.

What is Deemed Dispositions Tax?

According to the Canadian Revenue Agency (CRA):

“If you cease to be a Canadian citizen for a year, you are deemed to have disposed of certain types of property at their fair market value (FMV) when you left Canada and have immediately repurchased them at the same value. This is called a position taken.”

The CRA also explains how to avoid penalties, noting that if a person re-establishes Canadian residency, they can choose to “release” the presumptive status.

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In practical terms, this means that if Tanev had left Canada permanently, he would not have been taxed on any capital gains from his estate. This includes real estate, business, investments, and other assets you may have accumulated while in Canada. This was an important consideration for Tanev, who wanted to avoid the financial burden of a tax that is considered fixed. When you're talking about more than $46 million in earnings so far in his career, those taxes can add up.

Coming to the Maple Leafs Wasn't Just About the Tax Incentive

However, Tanev emphasized that his decision is not based solely on tax implications. “That plays a part in it, and family reasons and obviously coming to a good team is a big part of that,” he said. “I didn't want to leave Dallas for a team that wasn't trying to win. It's a big reason why this happened.” In other words, he could have chosen any Canadian team and received the same incentive. He chose Toronto.

For fans who wonder if this is something that might affect other athletes from the United States coming to Canada, Alter points out that Tanev's situation is unusual. Tanev, or his wife, had no prior ties to the US and spent his entire career in Canada until moving to Dallas. There are other players born in Canada, but his specific circumstances, if you count the amount of money he is paid, you don't come often.

Either way, the Leafs got their guy, Tanev joined a team he felt could win, and saved money doing it. As for the other tax issues that come with playing in the Canadian market, those still exist and may exist for some time.