Martin – Federal Court of Appeal confirms that contributions made to the RCAs of Blue Jays players were excluded wholly (not pro rata) from their Canadian-source income

The taxpayers (Russell Martin and Joshua Donaldson), who performed 40% of their duties in Canada rather than the US, agreed with the Toronto Blue Jays that a portion of their total package would take the form of annual contributions to a retirement compensation arrangement (RCA), which were excluded from their current employment income pursuant to s. 6(1)(a)(ii). The Crown position was that the RCA contributions should be excluded from their total employment compensation, with the resulting net employment income number allocated between Canada and the US on a 40/60 basis.

The taxpayers instead computed their Canadian employment income by allocating their total compensation package (including RCA contributions) between Canada and the US on a 40/60 basis, then carving out the s. 6(1)(a)(ii) exclusion for the full RCA contribution only from the 40% component. For example, for his 2017 taxation year, Russell Martin essentially computed his taxable income earned in Canada as follows:

The taxpayer methodology instead was as follows:

In confirming the taxpayers’ approach and dismissing the Crown’s appeal, Webb JA stated:

[A]lthough the contributions to the RCAs are excluded from their income for the purposes of the Act, the contributions are nonetheless compensation for services rendered in Canada … .

… The evidence … amply supports [this] finding … .

… The RCA is an arrangement under the Act. Therefore, the logical conclusion is that each individual directed that a portion of the amount that would otherwise have been paid to him for his services performed in Canada would be paid by the Club to the custodian of his respective RCA. It would be illogical to assume that any part of the amounts diverted to the RCAs would be for duties performed in the United States. …

The purpose of the relevant provisions of the Act is to tax non-resident employees on their compensation for their duties performed in Canada. This would first require a determination of what compensation (both quantum and type) is paid for the services rendered in Canada.

As a result … the correct interpretation … is … to first determine the compensation … that is paid for the duties performed in Canada and to then determine what part or parts of that compensation would be included or excluded from income for the purposes of the Act.

Neal Armstrong. Summaries of Canada v. Martin, 2026 FCA 144 under s. 115(1)(a)(ii) and s. 248(1) – RCA.