By Brett Pollard | Disclaimer
Yesterday, the Toronto Blue Jays and Colorado Rockies shocked the baseball world by trading Five-Time All-Star Shortstop Troy Tulowitzki for Four-Time All-Star Shortstop Jose Reyes.
Rumors are that Tulowitzki is not too happy about this trade in general and also about having to have to play on the turf field inside the Rogers Centre. However, Tulowitzki has another reason to be upset about this trade: taxes. Tulowitzki, having not played a game in Toronto since 2007, will receive a $2 million assignment bonus for being traded to the Toronto Blue Jays. However, don’t be too quick to become jealous of this extra capital that he will receive simply for being traded.
Playing Shortstop in Toronto will subject Tulowitzki to the much higher Canadian tax rates that he has become accustomed to in the United States. Under current federal income law, the highest tax rate in the United States is 39.6%. In Canada, the combined federal and provincial personal income tax for 2015 is 49.53%. Tulowitzki’s contract keeps him under club control through 2020 and includes a $15 million club option for the 2021 season. In 2011, he signed a 10-year, $158 million contract extension with the Rockies. Over the next four seasons the Blue Jays will owe Tulowitzki $20 million before his final year in 2020 where they will owe him $14 million. So, over the next 5 seasons Tulowitzki will make a combined salary of $94 million.
Looking at that salary from a tax perspective, Tulowitzki, as a resident of the United States, will owe US income tax on all of his salary. In addition, Tulowitzki will owe Canadian income tax for the games he plays at Rogers Centre. However, the United States tax system will allow Tulowitzki a partial credit for some of the taxes he pays to Canada. This credit is only a partial credit due to the fact that Canada taxes income at a higher rate than the US so the United States are only going to give a tax credit up to the amount Tulowitzki would have paid in the US.
In effect, based on the structure of the MLB season, Tulowitzki will pay Canadian taxes on approximately 40% of his annual earnings. Combining the Canadian taxes with the United States taxes minus the partial Foreign Tax Credit provided by the US, it is estimated Tulowitzki is going to see his tax bill head north as well by about $3.5 million over the life of his current contract. I suppose he can find solace in the fact that he won't have to pay as much in state income taxes as he did playing for the Colorado Rockies. Tulowitzki's tax bill from Colorado would have figured out to be around $350,000 annually.
Being traded initiated a no trade clause so it does not look like Tulowitzki will be relocating anytime soon unless it is because of his choice. Professional athletes across all sports in the United States are aware of the higher tax burden our neighbors to the north have and because of this it has made it difficult for teams to persuade high-priced free agents to take their talents north. It appears Toronto has made up for this by trading for those high profile free agents after they have signed those big deals.
Rumors are that Tulowitzki is not too happy about this trade in general and also about having to have to play on the turf field inside the Rogers Centre. However, Tulowitzki has another reason to be upset about this trade: taxes. Tulowitzki, having not played a game in Toronto since 2007, will receive a $2 million assignment bonus for being traded to the Toronto Blue Jays. However, don’t be too quick to become jealous of this extra capital that he will receive simply for being traded.
Playing Shortstop in Toronto will subject Tulowitzki to the much higher Canadian tax rates that he has become accustomed to in the United States. Under current federal income law, the highest tax rate in the United States is 39.6%. In Canada, the combined federal and provincial personal income tax for 2015 is 49.53%. Tulowitzki’s contract keeps him under club control through 2020 and includes a $15 million club option for the 2021 season. In 2011, he signed a 10-year, $158 million contract extension with the Rockies. Over the next four seasons the Blue Jays will owe Tulowitzki $20 million before his final year in 2020 where they will owe him $14 million. So, over the next 5 seasons Tulowitzki will make a combined salary of $94 million.
Looking at that salary from a tax perspective, Tulowitzki, as a resident of the United States, will owe US income tax on all of his salary. In addition, Tulowitzki will owe Canadian income tax for the games he plays at Rogers Centre. However, the United States tax system will allow Tulowitzki a partial credit for some of the taxes he pays to Canada. This credit is only a partial credit due to the fact that Canada taxes income at a higher rate than the US so the United States are only going to give a tax credit up to the amount Tulowitzki would have paid in the US.
In effect, based on the structure of the MLB season, Tulowitzki will pay Canadian taxes on approximately 40% of his annual earnings. Combining the Canadian taxes with the United States taxes minus the partial Foreign Tax Credit provided by the US, it is estimated Tulowitzki is going to see his tax bill head north as well by about $3.5 million over the life of his current contract. I suppose he can find solace in the fact that he won't have to pay as much in state income taxes as he did playing for the Colorado Rockies. Tulowitzki's tax bill from Colorado would have figured out to be around $350,000 annually.
Being traded initiated a no trade clause so it does not look like Tulowitzki will be relocating anytime soon unless it is because of his choice. Professional athletes across all sports in the United States are aware of the higher tax burden our neighbors to the north have and because of this it has made it difficult for teams to persuade high-priced free agents to take their talents north. It appears Toronto has made up for this by trading for those high profile free agents after they have signed those big deals.
Interested in keeping up with TaxaBall? Follow us on twitter or get new posts delivered to your inbox!
RSS Feed