The Sochi Olympics are underway, with the opening ceremonies just starting at the time of this blog post, and it is predicted that Canada will win 31 medals, including 13 gold. With these medal’s come bonus money. See the Canadian Olympic Committee (COC) started paying athletes for medaling back in the 2008 Summer Games. Gold medal winners get $20k, silver gets you $15k, and bronze medal winners earn $10k. The COC also pays the coaches of winning athletes as follows: $10,000 per gold, $7,500 for silver and $5,000 for bronze. The funds for these awards do not come from taxpayers but rather from corporate sponsors (e.g. the Royal Bank of Canada, Air Canada, Coca Cola).
When the 2012 Summer Olympics were going on, there was a media storm over the fact that these bonuses for winning a medal were taxable. Yup, if the athletes (and by extension, coaches) win a medal they are taxed, not on the value of the medal, but on the money that the COC is awarding them. The medal itself is not taxable because in Canada non-cash awards valued at less than $500 are not subject to tax. This storm also hit the US and resulted in American politician Marco Rubio puting forth a bill make their athletes bonuses tax free. In the end, nothing came of this. As the medal tally increases, I expect that once again some Canadians will express the typical disgust when they learn this money is, gasp, taxable.
The money, however, is taxable because it is income. ITA 56(1)(n)(i) stipulates that a prize “for achievement in a field of endeavor ordinarily carried on by the taxpayer” is taxable. Since training and competition is the means by which athletes and coaches earn their living, athletes and coaches must claim all prize money as income. But this is likely not the section that is applicable. Section 9 of the ITA also requires you to report all business income. If an athlete treats participation in their sport as a business, and most do, related business expenses are deductible on a federal income tax return.
Before all those flag waiving patriots get their knickers in a knot, while the winnings must be reported for tax purposes, this does not mean that the athlete or coach will actually have to pay any tax on the winnings. This is for two reasons. First, under our Income Tax Act anyone can deducted expenses incurred to earn their section 9 income. Athletes and coaches incur immense expenses to earn their Olympic medal bonuses. This includes costs related to training, coaching, equipment, travel, uniforms, and the like. These expenses more than offset the income from these bonuses. Second, these amateur athletes can put their winnings into the Amateur Athletic Trust which allows the money to be earned tax free, even under section 56.
Anyone with the most rudimentary understanding of our tax system understands that these amateur athletes are unlikely to pay any tax on these winnings and there is no need to change our tax system to make these winnings non-taxable. If they do pay tax on their winnings, they are likely a high income athlete like Sidney Crosby or need much better tax accounting advice. Hey, I am available and my rates are pretty good!
Subjecting awards to tax is not a judgement on the worthiness of the activity. Nor is the tax implying that the individual did not make sacrifices to obtain that award. Performance awards to athletes are no different from performance awards in any other endeavour, including CEO bonuses. Would we make CEO bonuses tax free? No, so why should athletic bonuses?
UPDATED: Feb. 23, see text in blue