Tax Impacts of “The Bubble” on Professional Athletes
As the world has witnessed, the COVID-19 pandemic has had a huge impact on global economies and daily life, while also significantly impacting professional sports leagues in Canada and the United States. Extraordinary precautions have been taken for the safety of players resulting in NHL teams (in Canada) and the NBA (in the United States) establishing their “bubbles” and the inability of the Toronto Blue Jays to play their home games in Canada in 2020.
As a result of these new “bubble” rules and players situated in different countries for extended periods of time, professional athletes in these leagues may see significant changes in their taxes for 2020, since in general, Canadian tax rates are higher than tax rates in the United States. With the 2020 NHL and NBA seasons nearing completion, MLB players will likely see the biggest impact on their taxes, since non-residents are taxed in Canada, based on the duty days they spend in Canada. For example, if the Blue Jays adjusted payroll for 2020 is CDN $65 million and if we assume that ordinarily, their duty days in Canada would be 50%, the CRA coffers are lighter by $16 million. The amount of the benefit to MLB players would depend on which state or country a player is considered resident. For example, an American Blue Jay player that resides in Florida, and earns $5 million, would see a tax reduction of approximately $650,000 in 2020 as a result of the bubble scenario!
Now that the NHL bubble has been established in Canada (Edmonton and Toronto), Canadian resident NHL players will be paying more Canadian tax since they have will have more duty days in Canada; however, they won’t be paying a higher tax amount. There may be a greater impact on European NHL players that play for American hockey teams, as they would have less duty days (and tax to pay) in the United States.
Since the NBA bubble is in Orlando, Florida, Toronto Raptors players will have less duty days in Canada for 2020 and as a result will pay less Canadian tax in 2020. For example, an American player that resides in a no-tax state, such as Florida, Texas or Nevada, earning $10 million per year, could see a tax reduction of $350,000 in 2020.
As the COVID-19 situation continues to evolve around the world and professional teams adapt accordingly, potential tax implications are an important but complex issue that needs to be considered. International tax experts such as Trowbridge have been monitoring this situation closely and work with professional players and teams to assess the financial impact of “bubbles” and “duty days” and devise plans to help minimize future tax challenges.