Canada Allows Amateur Athletes To Defer Income Tax

by Mike Godfrey, Tax-News.com, Washington

30 December 2008

Jim Flaherty, Canadian Minister of Finance, has announced proposed changes to the Income Tax Act that would increase the number of Canadian amateur athletes eligible to defer income tax on income from endorsements, prizes and other remuneration related to the athletes' athletic endeavours.

Under the existing income tax rules, athletes may defer paying tax on funds that are required, under the rules of the relevant international sport federation, to be held by a qualifying organization in order to preserve eligibility to compete at the amateur level. An athlete is generally taxed on those revenues only upon distribution to the athlete.

Most international sport federations no longer impose this constraint on an athlete’s eligibility to compete at the amateur level. Accordingly, the availability of this tax deferral is now generally quite limited. Under the new proposal, the Income Tax Act will be amended to extend the rules so that a broader category of athletes may benefit from the tax deferral.

The new rules will generally apply to an amateur athlete who is, in a taxation year, a member of a registered Canadian amateur athletic association and eligible to compete in international sporting events. These amateur athletes will be able to place income for the year from endorsements, prizes and other remuneration related to such athletic endeavours in a qualifying account. Income earned in the account will be tax-deferred in the same manner as income contributed to the account by the athlete.

The new measure will apply in respect of revenues received in 2008 and subsequent taxation years. These revenues will be taxed generally only upon the earlier date of distribution to the athlete or, as with the existing rules, eight years after the last year in which the athlete was eligible to compete as a Canadian national team member. Eligible income earned in 2008 that is contributed to a qualifying account on or before March 2, 2009 will be considered to have been contributed in 2008 for the purposes of calculating the athlete’s income for 2008.

Flaherty disclosed on Monday that the government intends to introduce legislation in respect of this tax deferral at an early opportunity.

"The government of Canada recognizes that sport continues to be a defining part of Canada's identity and is pleased to support Canada's athletes. We are proud to recognize their sacrifice, encourage their success and ease their eventual integration into the workforce by deferring tax on income from their athletic endeavours," he said.

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