Feb 03, 2026
Overview
The Tax Court of Canada decision in Martin v The King, 2024 TCC 153, delivers important guidance on the Canadian tax treatment of Retirement Compensation Arrangements (RCAs) for non-resident professional athletes and other high-income earners with cross-border income.
This ruling addresses how RCA contributions affect the computation of taxable income earned in Canada, particularly for U.S. residents performing duties in Canada.
As a seasoned Canadian tax litigation lawyer, this case comment highlights the decision’s value for entrepreneurs, professionals, investors, accountants, and crypto investors navigating international tax obligations.
The judgment clarifies the interaction between Canadian-source employment income, RCA deductions, and protections under the Canada-US Tax Treaty, helping to prevent overtaxation on deferred compensation.
Backstory
In Martin v The King, the appellants – U.S. residents Russell Martin and Joshua Donaldson – were former Toronto Blue Jays players. During the relevant taxation years (2015 for Donaldson and 2017 for Martin), they received significant compensation, including salaries and signing bonuses, with portions contributed to Retirement Compensation Arrangements (RCAs) as defined in subsection 248(1) of the Income Tax Act.
RCAs enable employers to provide deferred compensation, with employer contributions deductible and subject to a 50% refundable tax held in a Refundable Tax Account until distribution.
As non-residents, the appellants were subject to Canadian tax only on income from duties performed in Canada under paragraph 115(1)(a)(i) of the Income Tax Act. The Canada Revenue Agency (CRA) reassessed them by applying RCA contributions pro rata across total income (Canadian and U.S. sources), based on duty days.
This reduced the deduction available against Canadian-source income, increasing their taxable amounts. The taxpayers appealed, contending that the full RCA contributions should offset only Canadian-source employment income, given the arrangements’ connection to Canadian duties. The Tax Court heard the matter, with the appellants seeking to vacate the reassessments.
Key Issues and Findings in Martin v The King RCA Decision
The primary issue was the correct method for allocating RCA contributions when determining a non-resident’s taxable income in Canada under the Income Tax Act.
The court specifically considered whether RCA contributions qualify as part of “remuneration” and how they should be deducted in the context of Canadian-source income.
Justice Gagnon ruled in favour of the appellants. Key findings include:
- RCA contributions form part of the overall remuneration but are not treated as “income from an office or employment” until paid out, consistent with subsection 8(12) of the Income Tax Act.
- The CRA’s pro rata allocation was rejected; instead, the full contributions must be deducted exclusively from Canadian-source income, as Canada cannot tax or offset foreign-source income under established international tax principles and the Canada-US Tax Treaty (1980).
- This approach aligns with the purpose of Part XIII withholding rules and prevents inappropriate taxation of deferred amounts tied to Canadian employment.
- The decision references prior cases like Cuddihy v Canada (1997 FCA), reinforcing RCAs as exclusions from income computation rather than mere deductions.
Consequently, the taxable Canadian income was adjusted downward significantly, illustrating the Tax Court’s commitment to fair interpretation of complex provisions.
Implications for Non-Resident Taxpayers and Cross-Border Tax Planning
Martin v The King has substantial implications for non-resident professional athletes, executives, and investors earning Canadian-source income. The ruling supports structuring RCAs to fully shield Canadian-source earnings from immediate taxation, reducing effective rates through deferral.
Accountants and Canadian tax lawyers advising crypto investors with Canadian trading or operations can apply analogous strategies for deferred compensation.
The decision also highlights the importance of accurate documentation of duty days and residence status to withstand CRA scrutiny. Non-residents should anticipate potential CRA tax audits, as missteps could lead to penalties under subsection 163(2).
For those investing in Canadian assets, the case encourages proactive use of treaty provisions to optimize RCA benefits. It reflects broader global efforts, such as OECD BEPS initiatives, to ensure equitable cross-border taxation while protecting legitimate planning.
Note on Current Status (January 2026): The Crown (Department of Justice/CRA) filed an appeal to the Federal Court of Appeal on January 7, 2025. The Tax Court decision remains the leading authority pending any reversal or variation.
Key Takeaways: Martin v The King, 2024 TCC 153, underscores the critical nuances in applying Retirement Compensation Arrangements to non-residents under Canadian tax law. By rejecting the CRA’s allocation method, the Tax Court safeguards taxpayers from excessive burdens and upholds the Income Tax Act’s objectives.
Professionals with international earnings should prioritize tailored tax strategies. A knowledgeable Canadian tax litigation lawyer can help navigate these complexities effectively.
Pro Tax Tips for RCA Planning with Non-Resident Athletes
Experienced Canadian tax lawyers recommend the following approaches based on the Martin v The King ruling:
- Structure RCAs to link contributions directly to Canadian employment duties, maximizing deductions against Canadian-source income only.
- Maintain detailed duty-day records, including travel logs and schedules, to support income allocation during CRA reviews.
- Leverage Canada-US Tax Treaty provisions for U.S. residents to reduce withholding on future RCA distributions.
- For crypto investors, consider parallel deferred arrangements for Canadian-sourced gains, but always verify compliance with an expert Canadian tax lawyer to avoid reclassification risks.
FAQs on Retirement Compensation Arrangements for Non-Residents
What defines a Retirement Compensation Arrangement (RCA)?
An RCA is a deferred compensation vehicle where employer contributions are subject to 50% refundable tax, with benefits taxed upon distribution to the employee.
How does Martin v The King impact non-resident professional athletes?
The decision permits full RCA contributions to reduce Canadian taxable income without pro rata offset against foreign earnings, lowering overall Canadian tax exposure.
Can Canadian residents benefit from RCAs in a similar way?
Canadian residents use RCAs for supplemental retirement planning beyond RRSP limits, though the tax mechanics differ from non-resident scenarios.
What happens if the CRA questions non-resident status?
Residence depends on residential ties (family, property, economic); consult a seasoned Canadian tax litigation lawyer for appeals or determinations.
Has Martin v The King been appealed?
Yes – the CRA appealed the decision to the Federal Court of Appeal in January 2025. Monitor developments, as the outcome could affect future planning.
DISCLAIMER: This article provides broad information. It is only accurate as of the posting date. It has not been updated and may be out-of-date. It does not give legal advice and should not be relied on as tax advice. Every tax scenario is unique to its circumstances and will differ from the instances described in the article. If you have specific legal questions, you should seek the advice of a Canadian tax lawyer.
