Welcome to Toronto, Jose Reyes and co. -- now, meet the CRA
The sports world of Canada still buzzes today, after the Toronto Blue Jays made perhaps its greatest push for relevancy in 20 years.
Last night, word trickled down around dinnertime in the east that the Jays and Miami Marlins had agreed to a mega-trade, bringing stars Jose Reyes, Josh Johnson and Mark Buehrle north of the border.
Immediately, considering many of the players Toronto sent in return are still prospects, the trade makes the Jays more competitive. Immediately, the trade also appears to boost the value of a team, worth some $413 million by Forbes’ estimate, owned by the deep-pocketed Rogers Communications.
Yet while Jays fans are the biggest winners today, the biggest losers may well be its incoming players, millionaire residents of the U.S. that have no idea what it’ll be like once the Canada Revenue Agency gets its hooks in them.
Yes, while it’s tough to drum up sympathy for pro ballplayers earning eight- and nine-figure contracts, the nasty, little secret of getting traded to the Blue Jays is the tax hit that’s sure to follow.
*Bing: Who are the highest-paid Canadian athletes in sports?
How bad will it be? Let’s take a look at Reyes, the All-Star shortstop that’s the highest-paid player in the deal.
Before the 2012 season, Reyes signed a whopping six-year, $106 million contract with the Marlins, who of course cut ties with the Dominican after just 162 games in uniform (technically, Reyes played 160 games in ’12).
In Florida, where there is no state income tax, Reyes paid a tax rate of 39.6 per cent on his earnings. If we assume the Marlins were to decline a $22 million team option on Reyes for the 2018 season* when the shortstop would be 35, he’d pay about $36.4 million in taxes over the final five years of his contract, should he play in Miami.
But now that Reyes is to spend his next five years in Toronto, he will have much of his income subject to Ontario taxes, which are to soar to 49.53 per cent at the top rate in 2013, the first year the shortstop will come north.
Reyes’ income will now be taxed at the top Ontario rate for all games he plays in Toronto. That’s half the regular season (81 games), but since paid spring training for the Blue Jays is held in the U.S., only about 45 per cent of Reyes’ total Blue Jays salary will be taxed at the top Ontario rate, according to sports tax expert Robert Raiola.
If, for argument’s sake, we assume the remaining 55 per cent of Reyes’ deal is taxed at the same rate it was in Florida, the difference is still staggering.
Over the final five years of his contract in Toronto – assuming, again, the Blue Jays decline his pricy option for the 2018 season – Reyes would now pay about $40.55 million in taxes.
In other words, Reyes’ trade to the Blue Jays alone will take more than $4 million cash out of the shortstop's pockets.
By Jason Buckland, MSN Money
*To decline the $22 million option, Reyes would have to be paid a buyout fee of $4 million for 2018. For the purposes of this post, we have omitted that $4 million , as well as the 2018 contract year, as part of this calculation.
**Wikipedia photo. All figures in this post are in USD.