Steve Nash’s recent signing revives international income tax debate
Steve Nash is a two time league MVP who has played in the NBA since being drafted by the Phoenix Suns in the 1996 entry draft. Nash, from Johannesburg, South Africa, was raised in British Columbia and with his recent free agent status had many Canadians wishing he would return to Canada to sign with the Toronto Raptures.
The potential of Nash signing in Toronto has renewed the debate over the tax liability of playing north of the border. Many tax professionals think Ontario’s current marginal income tax rate of 46.4% (scheduled to increase to 49.5% as of July 1) deters professional athletes from signing with Canadian franchises.
This article addresses whether Canada’s tax exposure is out of proportion to that of the US. To help answer this question, we will examine each country’s tax policies and use the terms of Nash’s recent contract with the Lakers to compare his tax liability in California to that in Ontario.
When comparing the two systems of taxation, please note that Canada’s high income tax rate is deceiving, because it includes both the provincial and federal tax rates (all residual taxation power in Canada, other than Quebec, is left to the federal government). Therefore, Ontario’s 46.4% includes: the 29% federal rate on income over $132,406 plus Ontario’s 13.16% income tax rate on income over $500,000 plus Ontario’s surtax on current taxes of 56%.
Canada’s system is different from ours because in the US, each state has the right, separate and distinct from that of the federal government, to tax individuals. So an athlete performing services in Ontario is required to file only one income tax return to the federal government, but an athlete performing services in the US is required to file a federal income tax return and a state income tax return for each state that requires one.
Let’s use Steve Nash’s current $9,000,000 contract as an example. For the 2011 tax year, Nash would owe $2,597,075.25 in federal tax and $1,559,330.55 in Ontario tax for a total tax of $4,156,405.80 or a 46.18% tax rate in Canada. In comparison, as a California resident he would owe $3,110,631.50 in federal tax and $916,223.59 in state tax for a total tax of $4,161,840 or a 46.24% tax rate.
As you can see, the tax liability of playing in Toronto is nearly identical to the tax liability of playing in Los Angeles. Although the Canadian federal rate is lower than the US rate, athletes are hit extremely hard by Ontario’s surtax, so the overall tax rate ends up about the same as that of playing in California. The end result is that in Canada (using 2011 income tax rules), Nash would keep 53.82% of his income and in California, he would keep 53.76%.
In conclusion, Steve Nash’s signing with the Los Angeles Lakers had more to do with Nash chasing an NBA title than looking for a better tax situation. As we’ve just seen, there is no tax advantage to signing in California vs. Canada. The end result is that Nash believed that by signing with the Lakers he had a much better chance of competing for a NBA title as opposed to his chance by returning home to Canada and playing for the Toronto Raptures.
ALAN POGROSZEWSKI is an Assistant Professor of Sports Studies at St. John Fisher College and the President of his own tax consulting business whose clientele includes professional athletes performing services on three separate continents. Prior to joining St. John Fisher College, Mr. Pogroszewski was the Vice President of Business Operations for Sports Consulting Group, specializing in the representation of professional hockey players. Mr. Pogroszewski received his M.B.A. from Rochester Institute of Technology in 1996 and his M.S. in Taxation from St. John Fisher in 2003
athletes, baseball, basketball, Canada tax, contracts, Dwight Howard, First Take, hockey, income tax, IRS, Jerry West, Kobe Bryant, Lakers, Lakers Trade, Los Angeles Lakers, Mike Brown, NBA, NBA League News, NBA rumors, personal income tax, salary, state tax, Steve Nash, Steve Nash Trade, tax, tax returns, The Dan Patrick Show
January 1, 2012
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