Taxes for Athletes in Canada

Have you ever wondered just how much your favourite athlete pays in taxes? There is a common misconception that most professional athletes are overpaid millionaires, but that is not necessarily the case. Yes, there are super stars in the sports world that make prolific earnings but it essentially comes down to the sport they play, location, years of experience, skill level, etc. Most individuals face the standard tax preparation process, but for athletes it’s often a whole different story.

Depending on the jurisdiction, it may be required of professional athletes to pay taxes to each city or state they play in. This makes them “tax targets” because as these athletes practice and play in different locations around the world, there will always be a taxing jurisdiction expecting to collect their share of tax. Let’s take a look at the ways in which taxes play a role in the lives of professional athletes.

There are initially many incentives that help entry level athletes achieve top-level talent positions. For instance, there are benefits like The Children’s Fitness Tax Credit which helps parents with the costs of their child’s commitment to competitive training. A recent change was made to The Children’s Fitness Tax Credit, you can learn more by reading this article on tax breaks for families in Canada in 2015.

A benefit like this is meant to encourage a healthy, active lifestyle through participation in organized activities. For more information, here is a list of eligible expenses and non-eligible activities. Other incentives include athletic scholarships which help athletes further develop necessary skills while remaining in their home country. Although financial benefits like such are more established in the United States as opposed to Canada, it still provides a form of aid to support rising professional athletes..

For instance, in Ontario an association called the Ontario University Athletics (OUA) represents one of four governing bodies of the Canadian Interuniversity Sport (CIS). The OUA website provides further details regarding student financial awards that are obtainable. An additional incentive includes something called Amateur Athlete Trusts (AAT), which is another way that athletes find tax savings. An amateur athlete is able to place some parts of their income into a trust in which they are the beneficiary. Here is a link for more information regarding what kind of income can be contributed to an AAT.The Department of Finance provides tax incentives like the ones mentioned above, however, the moment an athlete achieves a top-level position in their sport, taxing begins.

Olympic Athletes

For Canadian Olympic medalists, the Canadian Olympic Committee awards cash bonuses. The values of these bonuses are as follows: gold is worth $20,000, silver is worth $15,000 and bronze is worth $10,000. The Canada Revenue Agency considers this as taxable prize money; as a result they ask that Olympic champions claim their medals under the Canadian Income Tax Act.

Professional Athletes

Federal taxes are owed by professional baseball, football, hockey, basketball players, etc. There are a number of cases where professional athletes and other celebrities commit tax evasion. You can learn more by watching this video about the top 4 celebrity tax cheats.Moreover, according to Sports Business Institute, we can get a better understanding of how much athletes generally owe; the figure in 2013 exceeded $3 billion. With the data that USA Today compiled, the average MLB, NBA, NHL player pays about $1 million in taxes.

There are a number of factors that must be taken into account when determining the tax obligation of professional athletes. These factors include: the residence of the player, source of income, how long they spend in a country, and whether they’re an independent contractor or an employee. Regardless of where American citizens and green-card holders live, they are taxed on their worldwide earnings.

Canada’s top tax rate is substantially higher than the United States, so it makes financial sense for Canadian athletes to move to the United States and relinquish Canadian residency status. In this case, they will only have to pay tax on their Canadian sourced income and not their worldwide income. American professional athletes on the other hand, typically have to pay tax on their worldwide income. However, a tie-breaker clause in the Canada-US treaty would allow an American athlete on a Canadian team from facing double taxation and would only be obligated to pay tax on their Canadian sourced income.

Overall, taxation for professional athletes always differs depending on whether the player has a Canadian, American or dual citizen status. To learn more about residency status and tax obligations, you can read this article about becoming a non-resident of Canada.

For additional information, the Royal Bank of Canada has created tips for newly drafted and professional athletes; here are the 10 financial planning tips for pro athletes

ABOUT THE AUTHOR

ALLAN MADAN

CPA, CA

Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.

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