It has recently come to light that Toronto Maple Leafs’ captain John Tavares has become entangled in a legal battle with the Canada Revenue Agency (CRA) over $8 million in taxes and interest, stemming from a $15.3 million signing bonus received 6 years ago. While his circumstance as an NHL hockey player is unique, complex considerations of tax laws, residency status and cross-border income can
affect any Canadian with a cross-border lifestyle.

If you live or work in the U.S. as a Canadian – or vice versa – there are intricacies involving tax residency that are essential to understand, which highlight the need for professional legal and accounting advice.

Tax residency
Determination of residency: Tax residency is crucial because it determines which country has the right to tax an individual’s global income. Countries
have different rules for determining tax residency, often based on physical presence (days spent in the country), domicile, and ties to the country (such
as a home, family, and economic interests).

 

Residency under tax treaties: International tax treaties can provide rules to resolve cases where an individual might be considered a resident in two
countries. These rules typically include tie-breaker provisions that consider factors such as permanent home, center of vital interests, habitual abode,
and nationality.

 

John Tavares’ situation
Non-residency issue: For athletes like John Tavares, the challenge often lies in proving non-residency in a country to avoid being taxed on worldwide
income there. If Tavares spent only 52 days in a particular country and wishes to claim non-residency, he would need to demonstrate that he does
not meet the criteria for residency under that country’s laws and under any applicable tax treaty.

 

Residency vever defined: While the Income Tax Act (ITA) of Canada, for example, does not explicitly define “residency,” it does offer guidance
through case law and the Canada Revenue Agency’s (CRA) administrative practices. The determination is highly factual and considers all relevant ties
to Canada.

 

The role of a legal and accounting team
Role of tax lawyer and accountant: A specialized tax lawyer and accountant can provide the expertise needed to navigate these complex issues. They can help in:

• •Analyzing the specific tax treaty provisions that apply between Canada and Tavares’ other country(ies) of residence.
• Preparing documentation and arguments to support non-residency status, considering the tie-breaker rules in the relevant tax treaty.
• Advising on the fi ling of any necessary forms, such as a residency exception form, to claim non-residency status for tax purposes.

Residency exception form
Filing requirements: Depending on the jurisdiction, there may be a specific form or process to officially claim non-residency status. This could involve demonstrating the individual’s ties to other countries and the intention to return to or remain in another country as their primary residence.

 

While we don’t know all the details of Tavares’ situation, we do know that it underscores the importance of engaging a team of professionals with expertise in international tax law and accounting. They can provide tailored advice based on the intricate residency status, income sources, and the relevant tax treaty provisions between Canada and any other country involved.

 

Although particularly true for high-earning individuals, this is not a do-it-yourself matter whatever your level of income. The bottom line is, professional guidance is essential.