Always look on the bright side, right? Well, it turns out there’s a bright side even to the fiscal cliff — for Canada.
The expiration of the Bush tax cuts for the wealthy, which came to pass on Jan. 1 as part of the cliff deal, returned the highest individual U.S. tax rate to 39.6%, up from 35% in 2012. This officially makes Alberta the most tax-friendly place to play in the NHL, according to Sean Packard, director of Tax at OFS, which offers wealth management services to pro athletes. The provincial rate, he notes, is only 10%, which, added to the federal rate of 29%, brings Alberta’s marginal rate to 39%, lower than the U.S. federal rate alone. For the Edmonton Oilers and Calgary Flames, it could be a much-needed boost in recruiting talent.
Other Canadian teams stand to gain as well. The Vancouver Canucks now come in seventh, rather than 23rd, in Packard’s ranking of NHL teams by after-tax income based on a hypothetical U.S.$2.5 million salary (see the chart below). The Winnipeg Jets soare from 27th place in 2012 to 16th.
Packard says he was “blown away” by how much his ranking changed from one year to the next. “It had always been a given that the U.S. was a better place to play tax-wise,” he says. That, though, is no longer the case.
It’s hard to believe Canada’s newfound tax advantage largely went under the radar until recently. It might be because players won’t be filing their 2013 tax returns until next year, says Packard. Agents, however, are starting to call in to discuss the implications of the new tax landscape, he says.
But what about the effect of tax breaks like the U.S. mortgage interest rate deduction, which Canada doesn’t have? Packard’s rankings don’t account for the many exemptions for which players who spend most of their time in the U.S. might be eligible. The mortgage deduction, though, doesn’t seem to be — excuse the pun — a game changer. It would save at most U.S.$20,000-24,000, he says, not nearly enough to make up the difference in after-tax income between the Florida Panthers, the most tax-friendly U.S. team, and the Oilers and Flames.
Tax rates on dividends might still tip the balance in favour of playing for U.S. teams, says Packard, but a player would need to have “a whole lot of investment income,” for that to offset the disparity in income taxation. It might be a relevant consideration for players nearing the end of their careers, who want to save up as much as they can, he adds. In general, though, Canada is coming out on top, and you can thank fiscal brinkmanship south of the border for that.
This post appeared first on CanadianBusiness.com
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