Do high Canadian taxes scare off NHL free agents?

Even though NHL contracts are paid in American dollars, Canadian teams are generally at a disadvantage when trying to attract big-name players due to the country’s high tax rates. The rate of tax players pay on their earnings varies greatly throughout the league depending on where they’re located. Those who believe money is the bottom line when it comes to contract time may be willing to take less cash in some cities because a lower tax rate means they’ll actually take home a bigger chunk of their pay.

A prime example is the case of forward Steven Stamkos of the Tampa Bay Lightning. Stamkos is scheduled to become an unrestricted free agent on July 1st and is bound to have several suitors. However, if he’s just interested in making as much money as possible he’s probably better off staying where he is and signing a smaller contract. The reason for this is because there’s no state income tax in Florida. The Lightning has reportedly offered Stamkos a deal worth $8.5-million a season for eight years and he didn’t appear too interested in it.

As usual, the media in Toronto is getting involved in the situation by claiming Stamkos will sign with the Toronto Maple Leafs for no other reason than the fact that he hails from nearby Markham. But the Leafs would have to offer him more than $10 million per season just to equal Tampa’s offer of $8.5 million. Players who skate for Ontario-based teams Toronto and the Ottawa Senators are taxed at a rate of 53.53 percent by the Canadian government as are any other residents who are paid more than $220,000 per year.

If Stamkos stays in Tampa or signs with the neighbouring Florida Panthers for $8.5 million, he’d take home $4.6 million dollars a year after agent fees and federal taxes. However, in Ontario he’d keep just $4.3 million on a $10 million annual contract. The Leafs and Senators would have to dish out approximately $2 million more per year for Stamkos to take home the same amount of money as he does in Florida. On a seven year contract, this would see an Ontario based team paying out an extra $14 million, which could be a crucial amount due to the league’s salary cap rules.

Ontario teams are at the greatest disadvantage in the league and Canada it comes to money-hungry free agents. Players in Quebec are subject to a tax rate of 53.31 per cent, while those in Winnipeg fork over 50.4 per cent. Players on Alberta teams Edmonton and Calgary are taxed 48 per cent and those in British Vancouver pay 47.7 per cent. The tax rates in Ontario and Quebec are higher than any of the 50 American states and fans will notice that most NHL stars who become free agents tend to sign with U.S. teams.

Most Canadian clubs were at an advantage before the salary cap was introduced in 2005 since they could spend as much as they pleased on free agent contracts. This was easy to do since the majority of Canadian teams sold out their rinks night after night and were among the league’s top revenue earners. Things are tighter with the salary cap in place though and if Canadian franchises need to spend more money on big-name free agents it obviously means they have less to offer the remaining players on their rosters.

Players on the Dallas Stars and Nashville Predators are also lucky enough to pay no state income tax and can sign for less money in these locations and still earn more. If two clubs are offering the same amount of money to a free agent there’s a good chance he’ll sign with the team that has a lower tax rate. There’s also an added bonus since the current exchange rate sees the American dollar worth roughly 30 per cent more than its Canadian counterpart. As soon as players cross the border or return home to Canada for the summer their wallets swell. Therefore, the more money they keep the better. This isn’t to say that all American-based NHL players pay little to no tax as California’s combined rate is 52.9 per cent, while Minnesota’s is 49.45 per cent, New Jersey’s is 48.57 per cent, Washington, D.C. pays 48.55 per cent and New York’s rate is 48.42 per cent.

As you can see these figures are higher than Alberta and British Columbia. But while American players may not be required to pay state tax, they still need to pay federal taxes with the lowest rates in the league being Florida and Texas at 39.6 per cent. In addition, the top tax rates in many states applied to a higher income level than in Canadian provinces. For example, people making over $220,000 in Ontario pay the highest rate while you need to earn more than $1 million in California to be hit with the most tax.

Not all free agents base their decisions on the almighty dollar though. Some of them are more interested in the city they’ll be living in as well as the quality of the team on the ice and what their role with the club will be. But whatever reason a free agent has for signing with a team, the higher taxes aren’t doing the Canadian based clubs any favours.

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