It wasn’t all that long ago Crowe Soberman (actual tax experts) blew away the myth American athletes pay more tax in Toronto than their counterparts playing in the United States. At least it wasn’t true in the major markets located in New York and California where players paid virtually the same as in Toronto despite the uneducated bleating from some of the talking heads in the US and Canadian sports media. Unfortunately things never stay the same and recently things have gotten worse for all high income earners in We The North.
Co-leaders in the Sports and Entertainment Group Adam Scherer and Jeffrey Steinberg updated the Crowe Soberman articles of a couple of years ago to reflect the changes.
For starters, the Prime Minister of Canada has wielded his tax sword and raised rates in Canada by 4%.
Canada’s top rate of tax of 53.5% versus 39.6% (US) Federal, plus state
From a tax perspective, states with no income tax (i.e., Texas) will yield the lowest overall tax result
Playing in Ontario is now the worst
followed closely by California
It sounds bad, but on closer inspection, despite the significant change in Canadian tax rates, things haven’t really got all that much worse yet.
If one follows the rationale provided by the tax experts in some detail and then skips to numbers provided as there is no way someone who isn’t expert in these matters will have a chance at actually doing it themselves, it has only gotten slightly worse for those athletes playing north of the border.
Playing in California (and by inference New York), American athletes will only cough up about one percent less in taxes than Toronto. While one percent can represent hundreds of thousands of dollars to a big NBA star like say the Raptors Kyle Lowry or DeMar DeRozan, it isn’t going to affect their decision about where to play.
The bigger savings are in the tax free states such as Florida or Texas which can cut about four percent off the taxes of a Toronto player in Crowe Soberman’s example. That’s over a million dollars a year for player like Lowry or DeRozan and it’s possible that would be enough to get some stars to change their minds about where to play.
The good news for fans in Toronto is players are still, for the most part, picking where they want to go based on winning, ownership, coaching, and lifestyle. Players continue to give up money for other factors all the time. Remember, it costs a lot more in tax to play in California over Texas and the Warriors aren’t exactly having any trouble getting the biggest names in their sport to re-up or switch teams to play there.
However, there remains a dark tax cloud on the northern horizon as Scherer and Steinberg point out.
cuts to Medicare and personal tax rates seem to be (US President Donald Trump’s) personal goal
So far Trump hasn’t been able to get out of his own way during his first year in office and that’s good news for Toronto’s professional sports franchises, but that isn’t something teams can count on over the rest of his first term. A significant cut to the top US personal tax rate could change a slight disadvantage into a significant problem, so as usual, Canada’s neighbor to the south could turn a myth into a reality overnight.