Residency – Not A Decision To Be Left On Ice

This is a guest post by Jeffrey Steinberg C.A., Partner, Audit & Advisory at Soberman LLP.

You have just signed a contract, and are ready to embark on or continue your career as a professional hockey player. But then it blindsides you like an open-ice body check – the realization that you must share part of your earnings with the Canadian government, the U.S. government, or both. The questions then become: in which country must you pay income tax, and how much will you pay?

The answers can be surprisingly complex. Let’s examine situations in which you would have to file a Canadian personal income tax return.

There are two scenarios in which a professional hockey player is subject to Canadian tax.

• If he is a resident of Canada, he pays Canadian tax on his worldwide income, no matter where he plays.
• If he is NOT a Canadian resident, he will pay Canadian tax if he plays on a Canadian-based team. In this scenario, only the games he actually plays in Canada will be subject to Canadian income tax.

As such, the main factor in determining how much Canadian income tax a player must pay is his residency status.

Figuring out where a player resides seems like it should be a simple concept – but in fact, it’s not always straightforward. Someone’s residency status can only be determined on a case-by-case basis, and takes into consideration several factors (or residential ties).

The primary residential ties in determining if someone is a tax resident of Canada are: the location of his home and where his spouse and/or dependents reside.

In addition, there are many secondary ties that apply, which a player can examine to assist in his residency determination:

• personal property (cars, clothing, furniture)
• social ties (gym, golf and religious memberships)
• economic ties (bank accounts, RRSP, credit cards, broker accounts)
• hospitalization coverage (health insurance plans)
• origin of driver’s license, vehicle registration or passports
• seasonal dwellings or memberships in Canadian organizations

No one secondary tie will bind someone to Canada, but these ties must be considered in determining his residency status. The more secondary ties to Canada a player has, the more likely he is to be considered a Canadian resident.

It often happens that a player will be considered both a resident of Canada and a resident of another country. For such cases, Canada holds tax treaties with many countries – including the United States and most European countries – that include tie-breaker rules. Most modern treaties review first and foremost the location of a person’s permanent residence, followed by his social and economic ties. If none of these factors points to one country over another, habitual abode and citizenship are taken into account.

The amount of income tax you pay can vary greatly depending on the state, province or even city you live in. In addition, what may work for you, may not work for your teammate. Through proper arrangement of your affairs, you can stick handle yourself to the appropriate country!