Friday, July 05, 2019

Does Kawhi know he could pay less tax in Ontario than in California?

As all of Toronto (and most of the rest of Canada) continues to obsess over whether Kawhi Leonard will re-sign with the Raptors for another year (or five!), I wondered what the financial implications if the decision might be. Everyone automatically assumes that he will be taxed much more highly in Canada than he would be in California, but I know that is not necessarily the case, and that Canadian and American taxation is not that different overall. Anyway, luckily, someone has done the math for me (of course they have, it's the INTERNET).
Tax guru and advisor to the rich and famous Tim Cestnick, with help from cross-border tax specialist Mark Feigenbaum, has looked at the income and tax implications of Kawhi's decision, and it seems like all is not lost. There may be some other minor professional and personal issues to take into account, but if it comes down to money, Mr. Leonard can sign on the dotted line tomorrow.
Toronto's offer is for US$146 million over 4 years (yeah, I know!), which is the equivalent of US$36.5 million a year. The Lakers and Clippers are offering a similar, but slightly lower, US$140 million over 4 years, or US35 million a year. Paying tax in Ontario, Canada (and the additional US taxes required) on $36.5 million would leave him with a paltry $17 million a year after taxes. However, California is also quite highly taxed, and paying taxes in California on $35 million would leave Kawhi with $17.4 million after tax, essentially on a par.
The kicker might be, though, that, under the NBA collective bargaining agreement, the Raptors could pay Kawhi a signing bonus of up to 15% of the total compensation, which would only attract a tax rate of 15%, if properly handled, which would effectively bring his take-home pay above that offered by the two California teams.
So, slam dunk!

UPDATE
Slam dunk? Not so much. Kawhi Leonard signed with the LA Clippers yesterday, (Danny Green also moved on). Probably nothing to do with the Canadian tax system, and probably nothing to do with the city itself. As the ever-wise Cathal Kelly advised just yesterday, we should not take this personally and, who knows, it may even be for the best.

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