New NHL CBA Will Make It Tougher For Canadian Teams To Compete

It was already tough for NHL teams in Canada to compete. Taxes are high, the weather isn’t great and the media scrutiny is intense (just ask Mitch Marner). Well, the new NHL CBA is about to make things a bit more challenging for Canadian teams.

The issue relates to taxes.

Under the old CBA, all of a player’s contract could be comprised of signing bonuses except for the CBA mandated yearly minimum salary.

That has changed. 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. So while a player who claims to be a resident of a U.S. state pays taxes in both Canada and the U.S., the combined tax savings is significant, potentially saving the player millions of dollars over the term of the contract.

So 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.

Toronto Maple Leafs captain Auston Matthew signed a 4 year/$53,000,000 with $49,650,000 in signing bonuses. By structuring the contract with 94% in signing bonuses, Arizona resident Matthews stands to enjoy a substantial tax savings. On his last deal alone, Matthews saved around $4 million in taxes across his 5 year deal worth $58,201,250.

Matthews isn’t the only player that has signed bonus laden contracts with a Canadian team to diminish the tax impact. Carey Price’s contract has $70 million of the $84 million allocated to signing bonuses, which amounts to 84% of the total value of the contract. On his $122 million deal, 93% of Leon Draisaitl’s contract is signing bonuses. And 75% of William Nylander’s contract is comprised of signing bonuses.

The money adds up quickly. With players having finite careers and finite earning potential, saving as much money as possible matters.

And now there can be as much as an additional 35% of a player’s income exposed to the very high Canadian tax rates.

With the Canadiens, Leafs, Senators and Canucks leading the league in income tax rates, and with all seven Canadian teams in the top eleven in the NHL, things just got a bit more complicated for Canadian teams. It’s tough enough with these teams competing against teams in tax free states like Florida, Tennessee, Nevada and Texas. And now, a relief valve for Canadian teams has been partially closed.