Why Olympic medallists can’t outrun the taxman

Rio Games prize money an issue that comes up each time, writes Jamie Golombek

As Canada’s Olympic athletes returned home from Rio this week with a 22-medal haul they were met at the airport with cheering. But some of them may also soon be greeted by the taxman.

In addition to the hardware the winning athletes brought home from the games, each Canadian medal winner will also 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 such that, 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.

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.”

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 approach is 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 its value is relatively low.

But the U.S. rules governing the taxation of both Olympic medals and cash bonuses may soon be changing. In July, a bipartisan Senate Bill to exempt Olympic awards from taxation was passed by unanimous consent. The Bill must still pass through the U.S. House of Representatives before it becomes law. Perhaps Canada’s lawmakers should consider adding Olympic prize money to the list of prescribed prizes exempt from taxation.