27 April 1998 External T.I. E9729055 - PRIZES, GIFTS, ETC. OF AMATEUR ATHLETE

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

The tax treatment of income from gifts, grants, sponsors, prizes, etc. received by an athlete on the boundary between amateur and professional.

Position:

Only general comments provided.

Reasons:

The question was very broad, and it was impossible to provide specific comments.

J. Gibbons
XXXXXXXXXX 5-972905

Attention: XXXXXXXXXX

April 27, 1998

Dear XXXXXXXXXX:

We are replying to your letter, which you faxed to Margaret McClintock of Library Services and which was forwarded to us for our reply. We apologize for the delay in replying. You are requesting information on Revenue Canada's treatment of income from gifts, grants, sponsors, prizes, etc., received by a particular type of athlete, whom you describe as an individual who is on the boundary between a true amateur and an athlete of professional/Olympic standard who may or may not have another source of income.

We cannot provide specific comments since your query is very general in nature, and the determination of the proper income tax consequences relating to amounts received by taxpayers will depend on an analysis of the facts, documentation and other information pertaining to the particular situation in relation to the requirements of the Income Tax Act (the "Act"). However, we can provide you with the following general comments.

Section 3 of the Act brings into income, for tax purposes, a taxpayer's income from all sources. A taxpayer is broadly defined in subsection 248(1) of the Act as any person whether or not liable to pay tax. As indicated in paragraph 3 of Interpretation Bulletin IT-334R2, unless specifically exempted by a provision of the Act, a taxpayer will usually be taxable in full on all non-capital receipts from a source whether or not the particular source is enumerated in section 3 of the Act. Since the type of individual described in your letter (the "athlete") is not specifically exempted from income tax, any amount received would generally be subject to tax.

Whether an amount received as a gift or prize is taxable is a question of fact which can only be determined by analyzing all of the circumstances in a given situation Generally, however, amounts received as gifts (that is, voluntary transfers of real or personal property without consideration) or prizes are not subject to tax in the hands of the recipient. However, these amounts are taxable when they are received by virtue of an office or employment (pursuant to subsection 5(1) or paragraph 6(1) of the Act), by virtue of a profession or business (pursuant to subsection 9(1) of the Act), or in respect of an achievement in a field of endeavour ordinarily carried on by the recipient (pursuant to paragraph 56(1)(n) of the Act). Similarly, grants or other similar amounts would also likely be taxable as income from one of these sources. Where athletes are considered to be carrying on a business, the amount of business income earned by the athlete is reduced by the amount of any expense that relates directly to such income. Although a discussion of the nature of expenses which are normally deductible is too involved to include in this letter, you should note that section 18 of the Act specifically denies some types of expenses such as personal and living expenses, other than travel expenses incurred by the taxpayer while away from home in the course of carrying on a business and capital expenses. Although it is a question of fact whether a business exists, as a general rule, an undertaking which involves an expenditure of time, energy or labour and that has a reasonable expectation of profit will be viewed as a business, notwithstanding that these activities may be quite separate and apart from the athlete's ordinary occupation.

Pursuant to sub-paragraph 56(1)(n)(iii) of the Act, the amount of a prize or gift to be included under paragraph 56(1)(n) of the Act may be reduced by any expense incurred by the athlete for the purpose of fulfilling the conditions under which the amount was received. However, such expenses cannot include 1) personal or living expenses other than expenses in respect of travel, meals and lodging incurred in the course of earning the income where the athlete was required to be absent from the athlete's usual place of residence, 2) reimbursed expenses, and 3) expenses which are deductible in computing the athlete's income under another provision of the Act.

In some cases, in order to preserve the athlete's eligibility to compete in sporting events sanctioned by certain international sports federations, amounts received by or on behalf of the athlete are required to be deposited with and controlled and administered by an applicable national sports organization in accordance with the rules of the particular international sports federation. Where such a national sports organization is a "registered Canadian amateur athletic association," an inter vivos trust (referred to as an "amateur athlete trust") shall be deemed to be created pursuant to subsection 143.1(1) of the Act. Paragraph 143.1(1)(c) of the Act deems the income of the athlete which is received by an amateur athlete trust to be the trust's income. Paragraphs 143.1(1)(g) and 149(1)(v) of the Act provide that no tax is payable on the taxable income of such trusts. However, amounts distributed to the athlete by the athletic amateur trust are taxable to the athlete at the time of receipt pursuant to subsection 143.1(2) and paragraph 12(1)(z) of the Act.

In some cases, athletes may receive amounts from the Athlete Assistance Program (AAP), which is under the auspices of Canadian Heritage. These amounts are intended to offset the athlete's incremental living, training, and competition costs as a result of their involvement in high performance sport and to allow them to maintain education and alternative career development. The program also covers tuition fees and has a provision for special need assistance for such things as relocation or day care. It is our view that these amounts are not taxable since they relate to assistance for personal expenses. However, otherwise deductible business expenses, including such expenses incurred by an amateur athlete trust, which have been subsidized by AAP payments, must be reduced by the amount of such payments for purposes of determining an athlete's business income for tax purposes.

We trust that these comments will be of assistance.

Yours truly,

P. Spice
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch