October 10, 2008
You won your medal, now here’s your money — and your T4A slip.
The Canadian Olympic Committee will hand out cheques to Olympic medallists in Toronto tomorrow, but has advised athletes the taxman will claim a portion of their rewards.
Twenty-one Canadian medallists from the 2008 Beijing Olympics are expected to attend a reception tomorrow afternoon at the Royal York Hotel and then head to the Air Canada Centre to take in the Leafs’ home opener against the Montreal Canadiens from the comfort of a posh suite.
Athletes will do a ceremonial puck drop and might even appear on Hockey Night in Canada.
The COC is awarding $20,000 to Olympic gold medallists, $15,000 to silver medallists and $10,000 to bronze medallists.
But along with the excitement of receiving such sums, athletes are now trying to get their heads around the news that the Canada Revenue Agency has ruled their prize money is taxable.
The decision leaves amateur athletes — many of whom don’t earn enough to pay any tax at all — unsure about how much of the exciting new bounty is theirs to keep.
“We’ve been really sheltered as athletes the past 10 years, because there really wasn’t much time to spend money or make money,” gold medallist rower Kevin Light said. “All of a sudden we’ve made more in a day than we will make in a year. It’s really fast-forwarding everybody in to researching, meeting with a tax guy to figure out.”
There’s no simple answer to the question of how much tax athletes will have to pay on their prize money because it will vary based on their income and province of residence.
In Ontario, an athlete who has no taxable income beyond a $20,000 performance reward would pay about $2,300 income tax on the prize, according to Darren Turcotte, an accountant with GMA LLP in Mississauga who has prepared tax returns for amateur athletes in the past.
“The first $8,500 to $10,000 you earn, depending on the province you live in, is tax-free,” Turcotte noted. He added cautiously: “Depending on your situation we recommend you get some professional advice.”
This is new territory for many first-time medallists, suddenly wondering how to write off legitimate business expenses related to their sport in order to reduce their taxable income.
Though many athletes don’t pay tax currently, it’s not like they’re living on nothing.
Sport Canada’s Athlete Assistance Program gives them $1,500 per month, so that’s $18,000 a year. But because that money is tax-free, they remain in a bit of a naive bubble about financial management. Now they need to learn — and quickly.
“When you go from suddenly having nothing to doing well, it’s really quite difficult,” gold medallist rower Malcolm Howard said. “We have no pension, we have no dental coverage. So for us as athletes, all we’ve got to do is think about saving. I want to go to medical school and put myself in a position where I don’t have a huge debt load at the end of it.”
Canada Revenue Agency’s reasoning behind making this prize money taxable is curious. In non-Olympic years, performance-based COC athlete grants of $5,000 a year are tax-free because the funds are deemed to be support for competition and travel expenses. But this Olympic prize money is considered an award for achievement. That makes it taxable income under the Income Tax Act.
Yet if a medallist continues to compete, their prize money will still go towards their sport costs. Obviously. That’s a nuance the ruling seems to miss.
Kevin Light has a suggestion to address that inconsistency.
“If they feel they have to tax, then only tax the athletes that are going to retire from sport and not the ones that are going to use the funds to further their Olympic career,” Light said. “Athletes that are going to retire and are in debt from the years leading up to the Olympics should also be excluded.”
Athlete tax returns could get interesting next spring. Not to raise a red flag for our champions, but get ready to get audited.