Canadian Olympians won’t just be wearing home their medals from Rio this year; the gold, silver and bronze medallion winners will be pocketing $20,000, $15,000 and $10,000 respectively – but not without a tax bill to match.
“Monetary awards that are given to Canadian athletes as a result of an Olympic achievement are taxable under the Income Tax Act, regardless of whether the athlete is an amateur or a professional,” Jelica Zdero, a spokesperson for the Canada Revenue Agency explains to Yahoo Canada Finance.
The CRA’s logic is that the cash award, offered by the COC’s Athlete Excellence Fund, is income. Simply put, prize money is taxable in Canada.
“The obvious exception is lottery winnings, yes, you’re economically enriched but there’s a specific rule that says you’re not taxed on that,” says Kim Moody, director of Canadian Tax Advisory at Moodys Gartner Tax Law LLP and a self-professed “tax geek” who follows legal quirks like this closely. “There is no specific exception for prize monies whether it’s an Olympic athlete or horse race winnings.”
Luckily, unlike they’re American peers – who received US$25,000, US$15,000 and US$10,000 for gold, silver and bronze respectively – Canadians don’t have to pay taxes on the value of the precious metal itself.
“The CRA has not previously considered whether the value of the medal is taxable, nor whether the receipt of such a medal is taxable,” says Zdero. “We are not aware of a provision in the Income Tax Act that addresses this question.”
Stateside, South Dakota Senator John Thune introduced a bill last year designed to “amend the Internal Revenue Code of 1986 to exclude from gross income any prizes or awards won in competition in the Olympic Games or the Paralympic Games” but it has yet to pass.
At the moment, U.S. Olympians will be taxed for their gold and silver medals worth US$564 and US$305 respectively according to the “podium value” estimated by Forbes.
While the tax structure is hotly debated south of the border, it has also stirred up discussion here in Canada, but Moody isn’t convinced it’s a priority for policymakers.
“In the whole scheme of things, it’s such a minor thing… the dollar amounts are small so do they want to except out such small amounts? Probably not,” he says. “But from a greater societal issue should they? Well that part is debatable.”
Moody admits that he can see both sides.
“The feel-good part of me says yeah, they should [be exempt], because they’re doing something of benefit for the country and it is such a small dollar amount,” he says. “But the tax geek in me says, well, I’m doing something of benefit for Canada as well, I don’t get the glory and attention but I am doing something so shouldn’t I have some of my profits exempt from tax as well?”
But Zdero says there is an option for amateur athletes to insulate themselves while they build towards their Olympian dreams: stash that income from endorsements, prizes, and public appearances in a trust.
She points out that an amateur athlete who is a member of a registered Canadian amateur athletic association yet still eligible to compete in an international sporting event sanctioned by an international sports federation as a Canadian national team member “may defer taxation if the income is paid into an amateur athlete trust.”
“The value of any funds or other property in an amateur athlete trust is included in the athlete’s income on distribution or, at the latest, eight years after the last year in which the athlete competed as a Canadian national team member,” says the CRA spokesperson. Funds or property left over in the trust after this period become taxable that year.
While the trust is helpful, the CRA has essential set a precedent – patriotism doesn’t just come from winning medals, it comes from paying taxes.
“That’s the whole theory right – you pay taxes in order to contribute for the benefit of the country,” says Moody.
And it’s apt to stay the status quo, that is, until we elect a former Olympian.
“Depending on who’s in office and what their political agenda is, something like this might ultimately get the attention of somebody and exempt out their earnings,” adds Moody. “My personal opinion is it would not be appropriate tax policy but it would be a feel-good story.”