Canadian teams given another disadvantage by Gary Bettman's new NHL rules
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While it is expected that not everyone wins when negotiating a deal, it is fair to assume that it should at least be fair for all parties involved.
Except, where the new NHL CBA is concerned, Canadian teams seem to have been cheated in regard to how signing bonuses are dealt with.
In a recent Forbes article, writer Eric Macramella commented on the disadvantage imposed on Canadian teams.
"The new CBA limits bonuses to 60% of a contract. Why does this matter? The Canadian tax on signing bonuses for non-residents of Canada is limited to 15%, with the player then paying the balance owing at the prevailing tax rate in his home state in the United States.
To minimize the tax burden, some players on Canadian teams structure their contracts primarily by way of signing bonuses, knowing those bonuses will only be taxed at 15% in Canada. That's why you sometimes see a player sign a deal with the CBA base salary of $775,000 and the other $10 million in signing bonuses. Taxes, taxes, taxes."
To minimize the tax burden, some players on Canadian teams structure their contracts primarily by way of signing bonuses, knowing those bonuses will only be taxed at 15% in Canada. That's why you sometimes see a player sign a deal with the CBA base salary of $775,000 and the other $10 million in signing bonuses. Taxes, taxes, taxes."
To put this into some perspective, Leon Draisaitl's last contract included a signing bonus of 93% of his contract, allowing for a lower tax hit. Under the new rules, only 60% will be allowed to be taxed at the lower tax-rate, creating a higher tax burden for Leon.
This change in signing bonuses, then, allows for as much as an additional 35% of a player's contact value to be taxed at a higher tax-rate.
Canadian teams are in the top 11 in the NHL in tax rates; this makes it difficult to attract players, especially top players, to Canadian teams, as well as penalizing those already under contract. Nineteen other NHL clubs have lesser tax rates, while Florida, Tennessee, Nevada and Texas have none whatsoever, allowing for zero-tax burden.
How Canadian teams will respond to the new tax rules remains to be seen, if an adjustment even exists to make the tax-hit more fair. It may mean finding creative ways to minimize the disadvantage these teams face, compared to teams based in the US.
With the new CBA taking effect at the start of next season, it will be interesting to see how general managers respond to the changes.
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