Even Olympians can’t outrun the taxman
Medal bonuses don’t fall under exemption for ‘public service,’ explains Jamie Golombek.
As Canada’s Olympic athletes returned home from Rio this week with a 22-medal haul, they were met at the airport by cheering family and friends as well as autograph-seeking fans. But some of them may also soon be greeted by the taxman looking for a piece of their Olympic winnings.
In addition to the hardware the winning athletes brought home from the Games, each Canadian medal winner will receive a cash award courtesy of the Canadian Olympic Committee’s Athlete Excellence Fund. Canada’s four gold medal winners will each receive $20,000, the three silver medallists will take home $15,000 per medal and each of Canada’s 15 bronze medal winners will receive $10,000. Note that the prizes apply to each member of a winning team. For example, each of the 18 players on Canada’s bronze-winning women’s soccer team will receive $10,000.
The question of the taxability of the prize money comes up with each Olympic Games, not just in Canada but in the U.S. as well.
Under Canada’s Income Tax Act, the general rule is that all prize money “for achievement in a field of endeavour ordinarily carried on by the taxpayer (other than a prescribed prize)” is taxable. A prescribed prize is defined “as any prize that is recognized by the general public and that is awarded for meritorious achievement in the arts, the sciences or in service to the public.”
The concept of a prescribed prize was introduced back in 1987 (retroactive to 1983), shortly after John Polanyi won the 1986 Nobel Prize in chemistry, opening a debate surrounding the prize’s taxability. Another example of a prescribed prize includes the Governor General’s Performing Arts Awards.
Since then, the CRA has responded to several technical interpretation requests about whether various prizes could be considered “prescribed.”
Before the 2010 Vancouver Olympic Winter Games, the CRA was asked specifically whether the prize money awarded by the COC would be taxable. The CRA responded that the wording in the act was “sufficiently broad” to tax an Olympic medal prize.
This is consistent with other CRA responses, which state that although winning an Olympic medal may be an internationally recognized achievement and could “indirectly promote a sense of nationalism,” the prize is not awarded in recognition of public service and therefore cannot be considered a prescribed prize that would be tax exempt.
Most recently, in March 2014, a taxpayer wrote to then-prime minister Stephen Harper about the taxation of Olympic athletes. In the letter, which was forwarded to the CRA for a response, the taxpayer wrote that “that successful Olympic athletes should not have their cash prizes taxed.”
The CRA acknowledged in its published, redacted response that it was “a sensitive issue that comes up at every Olympics” and the government “recognizes that sports are a defining part of Canada’s identity.”
But, as the CRA stated previously, “While Canadians are proud of the Canadian Olympic athletes’ accomplishments, the performance awards the athletes receive from programs such as the Athlete Excellence Fund are not awarded in recognition of service to the public and do not qualify as a prescribed prize.”
This seemingly harsh approach is, in fact, consistent with the current tax treatment of Olympic prizes in the United States, although the U.S. goes so far as to tax the value of the metal in medal. Of course, given that the 2016 Olympic gold medal contains only about one per cent gold (the rest being silver and some copper), its value is relatively low (estimated to be about US$600, using current commodity prices.)
But the U.S. rules governing the taxation of both Olympic medals and cash bonuses (US$25,000 for gold, US$15,000 for silver and US$10,000 for bronze) may soon be changing.
Awards the athletes receive from programs such as the Athlete Excellence Fund are not awarded in recognition of service to the public and do not qualify as a prescribed prize.
In July, a bipartisan Senate bill to exempt Olympic awards from taxation was passed by unanimous consent. A similar bill was introduced back in 2012 but was never passed.
The bill must still pass through the U.S. House of Representatives before it becomes law. It’s expected to be a priority when the House resumes in September so it an be signed into law by President Barack Obama before his term is over.
Earlier this month, New York Democratic Sen. Chuck Schumer called on the House to pass the bill. “Our Olympian and Paralympic athletes should be worried about breaking world records, not breaking the bank, when they earn a medal,” Schumer said. “Most countries subsidize their athletes. The very least we can do is make sure our athletes don’t get hit with a tax bill for winning.”
Perhaps Canada’s lawmakers should take the lead and consider adding Olympic prize money to the list of prescribed prizes exempt from taxation.