Martin v. The King, 2024 TCC 153 -- summary under Salary Deferral Arrangement

The taxpayers (two baseball players), who performed 40% of their duties in Canada rather than the US, agreed with the Toronto Blue Jays (the “Club”) that a portion of their total package would take the form of annual contributions to a retirement compensation arrangement (RCA). The Crown position was that the RCA contributions did not enter into computing the taxpayers’ income for the purposes of the allocation of 40% thereof to Canada because they were not received by the taxpayers and because of the specific exclusion under s. 6(1)(a)(ii) of RCA benefits from employment income.

Gagnon J instead agreed with the taxpayer submissions that the exclusion of RCA contributions in s. 6(1)(a)(ii) only applies against the amount of Canadian-source income subject to taxation in Canada, so that those contributions were to be deducted solely from the 40% of their remuneration that was earned in Canada. Hence, using the 2017 taxation year of Martin as an example, his taxable income earned in Canada was to be computed as follows:

2017-0702061E5 concerned a non-resident athlete playing for a Canadian team, who performed 40% of his duties in Canada and who received $1,200,000 in annual salary, with an additional $800,000 annually contributed by the team to his RCA. CRA had rejected the above methodology as it would have resulted in the athlete in that interpretation having nil Canadian-source income. However, Gagnon J agreed with the taxpayers that such an arrangement would not meet the requirements of an RCA and would instead likely constitute a salary deferral arrangement (SDA). – whereas here the taxpayers had substantiated the existence of an RCA by obtaining an actuarial report to support the amount of contributions necessary to provide them with a reasonable pension on retirement.