Federal Court of Appeal Upholds Tax Ruling for Non-Resident Professional Athletes

Unanimous ruling in favour of former Blue Jays players draws a clear line on cross-border taxation

The Federal Court of Appeal has unanimously upheld the Tax Court of Canada’s 2024 decision in favour of former Toronto Blue Jays players Russell Martin and Joshua Donaldson in His Majesty the King v Martin and Donaldson, 2026 FCA 144 – a landmark ruling on how Canada taxes non-resident professional athletes.

What Was at Stake

At the heart of the dispute was whether the Canada Revenue Agency (CRA) could tax retirement compensation arrangement (RCA) contributions made by a Canadian employer on behalf of non-resident players beyond the portion attributable to services actually performed in Canada. RCAs, unregistered pension plans created under the Income Tax Act (Canada), are a key incentive used by professional Canadian sports teams to recruit international talent. 

What the Court Decided

The Federal Court of Appeal confirmed the correct analytical approach: first, determine the compensation (both in quantum and in type) that is paid for duties performed in Canada, and, second, which parts of that compensation are included in or excluded from income for purposes of the Income Tax Act.

Critically, the Court held that the Crown’s position would have extended Canadian tax to compensation earned in the United States, effectively exceeding Canada’s taxing jurisdiction over non-resident employees.

Why It Matters

This decision provides important clarity on the rules governing the taxation of non-resident employees, including athletes employed by Canadian teams. While the case arose in a professional sports context, the principles apply broadly to any industry where non-resident employees perform services across borders and receive structured or deferred compensation.

The key takeaway is straightforward: Canada may tax non-residents only on income genuinely sourced in Canada.

Next Steps

The Tax Court of Canada initially ruled in favour of Martin and Donaldson in December 2024. The Federal Court of Appeal has now unanimously dismissed CRA’s appeal. Should the Crown choose to seek further review, it has 60 days from the date of the decision to apply for leave to appeal to the Supreme Court of Canada.

Marie-France Dompierre and Marc Pietro Allard acted for Martin and Donaldson in this matter.