Norman Powell
Toronto Raptors guard Norman Powell reacts after dunking for a basket against Charlotte Hornets at Scotiabank Arena, on Nov. 18, 2019.
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The first was from his agent telling him that he was part of a blockbuster trade that sent him from the Portland Trail Blazers to the Los Angeles Clippers.
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The second was from the Canada Revenue Agency (CRA) claiming over $1.2 million in additional income tax on “inducements” paid by the Raptors in 2019 and 2020 to attract the star two-way guard to the surging Toronto team.
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Powell, who was part of the Raptors’ 2019 championship team, is now appealing the CRA’s decision in the Tax Court of Canada.
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Powell’s faceoff with the tax agency is over the same issue as ex-Toronto Maple Leafs Patrick Marleau and John Tavares, namely that his nearly $7 million in signing inducements should be taxed at only 15 per cent and not at the top income tax bracket (over 50 per cent).
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A key question for the court to determine is if the inducement offered by the Raptors Powell’s contract to entice him to Toronto fits the definition of an “inducement” under the U.S.-Canada treaty that sets the tax rate at 15 per cent.
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Powell says yes, but the CRA says no.
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The case, like Marleau and Tavares’, could have a significant impact on how Canadian professional sports teams use signing bonuses or salary inducements as a tax incentive to attract foreign athletes to Canada instead of lower-taxed American organizations.
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Powell’s lawsuit argues that the millions in inducements he signed with the Raptors to attract him to Toronto are covered by provisions of a Canada-U.S. tax treaty which set the tax rate for an “inducement to sign an agreement” at 15 per cent.
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“The Toronto Raptors and the Appellant (Powell) both understood that the Inducement was a key component of the Appellant’s decision to sign” with the Canadian team, reads the appeal.
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But, per Powell, the CRA disagreed. On Feb. 4, 2022, the agency issued notices of assessment to him for 2019 and 2020 that taxed his inducement payments at the ordinary federal and provincial income tax rates (likely over 50 per cent) instead of 15 per cent.
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“The Toronto Raptors agreed to pay the Inducement to entice the Appellant ‘to sign an agreement relating to the performance of’ his services as an ‘athlete’,” Powell wrote, saying that CRA’s arguing otherwise is “to distort the legal and economic reality” of his contract with the Raptors.
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Powell objected to the CRA, which he says accepted his objections “in full” on March 1, 2024.
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But then to Powell’s surprise, six days later the CRA issued a reassessment that once again considered his inducements to be taxable at the full federal and provincial tax rates instead of 15 per cent.
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Even more confusing is that one year later, the CRA “admitted and agreed” that the $7 million paid by the Raptors to Powell in 2019 and 2020 were in fact “an inducement… to choose the Toronto Raptors” under the terms of his NBA contract, his lawsuit states.
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“The CRA has admitted that the Inducement was paid to the Appellant as an inducement for him to choose the Toronto Raptors. This should conclude the analysis,” reads his appeal.
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In his lawsuit, Powell says the CRA made essentially the exact same arguments as they did in Tavares’ and Marleau’s cases without considering the differences between an NBA and NHL contract.
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His appeal suggests that CRA copied its findings in the Tavares and Marleau cases and applied them to Powell, who plays a different sport in a different league with different player contracts.