We here at Moodys Gartner are caught up in the Olympic fever (Go
Canada Go!)...but like always we are thinking about tax! One
controversial aspect is the tax that Olympic athletes pay on their
prize money. Yes, Canadian and American athletes are given
prize money from their country's Olympic governing committee
for winning an Olympic medal. In Canada, the Canadian Olympic
Committee awards athletes with $20,000 for a gold medal, $15,000
for a silver medal and $10,000 for a bronze medal. The
Minister of National Revenue has disclaimed the right to tax the
value of the medal itself. Similarly, in the United States,
Olympic athletes are awarded $25,000 for a gold medal, $15,000 for
a silver medal and $10,000 for a bronze medal from the U.S. Olympic
Committee. Surprisingly, athletes in both Canada and the US
are subject to taxation on this prize money at their own marginal
tax rate. In Canada, the prize money is subject to tax as it
is not exempt by Regulation 7700 of the Regulations to the
Income Tax Act (the "Act"). In the US, the
prize money is considered earned income abroad and at the federal
level an athlete in the top tax bracket will pay close to $10,000
for a gold medal win. Texas GOP Rep. Blake Farenthold has
re-introduced the TEAM Act (Tax Exemptions for American Medalists
Act) which would exempt US Olympic athletes from paying taxes on
the medals and accompanying prize money. Many countries do
not tax athletes on their Olympic winnings, for example India, so
why do we?
From a technical perspective, Regulation 7700 of the Act exempts
certain prize money from taxation. This provision was added
to the Act so that Nobel Prize winner Dr. John C. Polanyi would not
face tax on his prize. The provision appears to have been
added due to public sentiment. Is there not similar public
sentiment for Olympic athletes? Regulation 7700 only exempts
those monies awarded in relation to meritorious achievement in the
arts, sciences or service to the public, not sports. Some
have raised the point that Olympic athletes may provide a public
service as they indirectly promote a sense of nationalism; however,
that is not the current view of the Canada Revenue Agency (see CRA
One argument could be that athletes are already getting money in
the form of funding from the various levels of government.
The federal government provides about $62 million in annual funding
to the Own the Podium program. Provincial governments
contribute varying amounts to sports programs, for example Quebec
provided approximately $2.6 million to amateur sports in 2012-13
while Alberta provided only about $159,000. In addition,
Quebec provides a tax credit of $6,000 to carded athletes.
Given that many athletes devote their life to training and have
numerous expenses such as equipment, coaches and the like, it is
likely that if athletes were running a business, they would be
bankrupt! Not convinced this argument is very compelling.
Interestingly, Canada passed a provision in the Act,
specifically subsection 115(2.3), that exempted income earned in
Canada in connection with the 2010 Vancouver Olympic and Paralympic
Winter Games for athletes from countries other than Canada, games
officials and foreign media. Why would Canada give up the
right to tax income of non-residents earned in Canada but tax its
own athletes on the nominal prize money?
How much tax is the Canadian fisc really losing? In
Vancouver, Canada won 26 medals, although granted some of these are
team medals (i.e, hockey and curling), so for easy figuring
let's assume that there were 100 medals awarded to Canadian
athletes at an average of $15,000 – that's $1.5 million
of revenue. Most athletes are not fortunate enough to be a
household name and a professional sports star like Sidney Crosby,
so let's assume they are on average in a middle tax bracket,
say 22%, then the fisc is out approximately $330,000 – not a
whole lot of money in the big scheme of things!
Oh well....Go Canada Go!
Moodys Gartner Tax Law is only about tax. It is
not an add-on service, it is our singular focus. Our Canadian and
US lawyers and Chartered Accountants work together to develop
effective tax strategies that get results, for individuals and
corporate clients with interests in Canada, the US or both. Our
strengths lie in Canadian and US cross-border tax advisory
services, estateplanning, and tax litigation/dispute resolution. We
identify areas of risk and opportunity, and create plans that yield
the right balance of protection, optimization and compliance for
each of our clients' special circumstances.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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