40% of a non-resident athlete’s $2 million compensation package from a Canadian team was in the form of annual team contributions to his retirement compensation arrangement. Upon retirement or loss of employment, the athlete would receive a lump sum cash-out payment from the RCA that would be subject to 25% Part XIII tax.
After noting that “4(1)(b) requires a reasonable allocation of the employment income between the two countries,” CRA indicated that the $800,000 annual team RCA contribution was excluded from employment income under s. 6(1)(a)(ii) and that the (net) employment income of $1,200,000 should be allocated as to 40% (or $480,000) to Canada based on the higher number of games played in the U.S. Thus a submission that the athlete’s Canadian employment income under s. 115(1)(a)(i) was nil through allocating the s. 6(1)(a)(ii) exclusion wholly to the Canadian income ($2 million x 40% - $800,000) was unsuccessful.