Former Toronto Blue Jays all-stars Russell Martin and Josh Donaldson scored a significant victory vs the Canada Revenue Agency (CRA) as a Tax Court judge ruled against the CRA's attempt to tax millions of dollars in additional income.
As both players were non-residents of Canada, the case centered on the correct computation of their income earned in Canada under the Income Tax Act, specifically the proper allocation of contributions to Retirement Compensation Arrangements (RCAs) and its exclusion from their taxable Canadian-source income.
The precedent-setting decision found that the players’ taxable income in the years audited by CRA was millions of dollars less than what the agency claimed. The Tax Court of Canada ruled in favour of Martin and Donaldson describing CRA's method of excluding RCA contributions from their total employment income before allocating income between Canada and the United States as "faulty". The Tax Court of Canada concluded that the RCA is strictly a Canadian tax mechanism, meaning RCA contributions should be excluded from Canadian-source income only. This decision affirms that Canada does not have jurisdiction over non-resident foreign source income, leading to significant reductions in the income tax payable by Martin and Donaldson in Canada.