CRA finds that a US athlete’s Canadian “signing bonus” was in substance employment remuneration for Treaty purposes

A U.S.-resident professional athlete signed a multi-year contract with a Canadian sports team which, in addition to salary, provided for the payment of a “Signing Bonus,” payable in annual instalments but with the instalments being lost for the sports year in which the taxpayer withdrew his services or breached the contract, and thereafter. In finding that the instalment received to date fell under Art. XV(1) of the Canada-U.S. Convention (Canadian employment subject to Canadian income tax without Treaty limitation) rather than Art. XVI(4) (Canadian tax limited to 15% of a payment of an “inducement to sign an agreement relating to the performance of the services of an athlete (other than an [Art. XV(1)] amount”), CRA stated:

Although the Agreement defines the Bonus as meaning compensation for signing the contract, the contractual requirement for the payment of the Bonus links the amount of the Bonus to which the Taxpayer is entitled to the performance of employment services.

Neal Armstrong. Summary of 14 July 2022 Internal T.I. 2020-0869441I7 under Treaties – Income Tax Conventions – Art. 16.