We The South? 

How the Toronto Raptors upcoming NBA season in Florida will impact their taxes.

Adam Scherer, Jeffrey Steinberg, David Silber
Article
| 11/23/2020
Tax advantages Raptors in Tampa

As the COVID-19 pandemic roars into its tenth month, we’re all getting antsy and craving normalcy. Recent vaccine development news is very welcome, but there’s still a while to go of hunkering down.

At least some elements of usual life carry on, though perhaps in an unusual fashion. For the NBA and the Toronto Raptors, the adjusted schedule of last season has made for a truncated off season, with a December 22 start date for next season fast approaching. And so, the business of basketball whizzes right along. This week alone, the Raptors welcomed two new draftees, Malachi Flynn and Jalen Harris. They also re-signed fan-favourite Fred Van Vleet – with the largest-ever contract in NBA history awarded to an undrafted player. “Steady Freddy” was right to say, “Bet on yourself!”

There is one obstacle for the Raptors in pandemic play: the Canada-U.S. border, which remains closed. Since crossing it frequently is not feasible, the Raptors will be the lone franchise to not play their home games in their home arena.


It was reported that Raptors players had a say in the decision of where to make their temporary home. We wonder if they anticipated the tax advantages as well?
Several locales were vying to be the Raptors temporary home. The mayor of Kansas City, Mo. penned an open letter to the franchise to come to the “Show-Me” state, coupled with a tweet from NFL quarterback Patrick Mahomes endorsing this. Louisville, Ky. has NBA-ready facilities and made known its desire to host the Raptors this year.

 

It was reported that Raptors players had a say in the decision of where to make their temporary home. Whether for societal reasons, or logistical reasons, or simply for the weather, the Raptors landed on Tampa Bay, Fla. as their base for the 2020-2021 season.

We wonder if they anticipated the tax advantages as well?

Recall that Canadian tax rules state that a non-resident athlete employed by a Canadian team is taxable in Canada for the duties he performs here – the games and practices that take place north of the border. Most Raptors players retain U.S. residency. As such, they do not pay Canadian taxes on income earned for time worked outside of Canada – essentially, road games.

Raptors players typically perform about 65 per cent of their duties in Canada, including training camp, practices, regular season games and playoff games. Thus, in a normal year, they pay Canadian taxes on 65 per cent of their salary.

Forgive the cliché, but 2020 is not a normal year. Just prior to last season’s abrupt halt, in calendar 2020 the Raptors had played 17 road games and 13 home games. Not only was their first six weeks disproportionately weighted to road games, their regular season and playoffs resumed entirely in the NBA bubble in Orlando, Fla.

With upcoming training camp and games - and potentially a sizeable portion of their 2021 calendar year - being played outside of Canada, this could be a major win for Raptor players’ pocketbooks. It’s likely that their duty days in Canada will drop to 15 to 20 per cent of their services.

Canadian federal and Ontario provincial tax rates presently sit at 53.5 per cent. U.S. federal tax rates are presently 37 per cent. Sounds like quite a gap, right? As many of you who have read our previous articles know, the difference is usually much closer than you’d assume – thanks to some states having tax regimes (i.e. California’s state tax rate is 13.3 per cent), favourable Canadian treaty reductions in tax for signing bonuses, and the high cost of Social Security and Medicare taxes in the U.S. It is not uncommon for a player on a Canadian team to pay approximately 40 per cent tax on his earnings in Canada, which compares favourably to most states. But, Florida has no state tax! Florida-based teams will always be favourable from a tax perspective. To the extent the Raptors play home games in the state of Florida, their effective tax rate will be as low as it could possibly be.

Avoiding Canadian winters and keeping more of their pay may be considered a “win” for some Raptors players. This plan makes for some losses on the other side of the equation though. A temporary home is likely no replacement for being uprooted from their routine and enjoying the comforts of what has become their winter home, performing in front of the most loyal and faithful fans in the NBA. Toronto fans lose out on the opportunity to see their team’s exciting brand of basketball live. And Canadian taxpayers lose too. The Raptors not playing here could amount to $30 to $40 million USD less going to government coffers. That’s a government already expecting a $343 billion pandemic deficit. While the Raptors’ portion might be a drop in the ocean, every little bit helps.

This article has been prepared for the general information of our clients. Specific professional advice should be obtained prior to the implementation of any suggestion contained in this article. Please note that this publication should not be considered a substitute for personalized tax advice related to your particular situation.

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Adam-Scherer-Crowe-Soberman-Toronto
Adam Scherer
Partner, Tax
Adam Scherer Professional Corporation
Jeffrey Steinberg
Jeffrey Steinberg
Partner, Audit & Advisory
Jeffrey Steinberg CPA Professional Corporation