Pitcher strikes out at the G20 summit

National Post

2010-06-12


Moving series from Toronto may cost him US$75,000

Major League Baseball's decision to move the Toronto Blue Jays' three-game series against the Phillies to Philadelphia during the upcoming G20 summit could end up costing former Jays' pitcher Roy Halladay up to US$75,000 in U.S. taxes, according to The Wall Street Journal.

mr. halladay, who pitched for the Jays from 1998 to 2009 before being traded to the Phillies, makes about US$16-million per year. according to the WSJ, if the series was held in Toronto, his Canadian-source earnings would have been around US$215,000.

Yet this amount would not have been taxed in Canada under a special exception to the general rules.

Normally, a non-resident of Canada is only taxable on his or her income from Canadian sources. for professional athletes, this would include the portion of his or her compensation that relates to employment performed in Canada, such as games played on Canadian soil, regardless of whether the team is based in Canada or in another country.

The Canada-U. S. tax treaty, however, contains a special rule that states that a non-resident athlete, who is not present in Canada for more than 183 days in a particular calendar year, and who is resident in the United States and is employed by a professional U.S. team, is exempt from Canadian tax on any of his or her employment income from the team.

in other words, had mr. halladay travelled to Canada for the Phillies-Jays series, the US$215,000 would have been exempt from Canadian tax, but would have been classified as "foreign-source income" for U.S. tax purposes.

While still taxable in the United States at about 35%, resulting in the US$75,000 of tax, mr. halladay could have used "excess foreign tax credits" carried forward to eliminate that tax liability.

When mr. halladay, a U.S. citizen, was playing for the Jays, not only did he have to pay Canadian federal and Ontario tax on his earnings, but he was also required to report these earnings on his U.S. return, since the U.S. taxes based on citizenship (Canada taxes based on residency).

mr. halladay would then have been able to claim foreign tax credits for the taxes paid in Canada to reduce his U.S. tax on that income to zero, since Canadian tax rates are higher than U.S. rates.

The excess Canadian tax paid that was unable to be used in prior years against U.S. taxes payable is known as an "excess foreign tax credit," which can be carried forward to reduce future years' U.S. taxes, but only on foreign-source income, which in the world of baseball means games played outside the United States.

Since the Canadian games are now being played in Philadelphia, no foreign-source income is being generated and the result is an additional US$75,000 tax bill for mr. halladay.

While one suggestion for mr. halladay might be to simply invest in some Canadian stocks or bonds to generate foreign income this won't help him since foreign tax credits on earned income can't be used to offset tax on investment income.