Olympics-smile-woman

Canada won 25 medals at this year’s Olympic games, and our athletes have returned home.

But their winnings — $20,000 per gold medal; $15,000 for silver; $10,000 for bronze — are taxable, says Jeff Steinberg, partner with the sports and entertainment group of Crowe Soberman LLP. That’s because CRA doesn’t deem Olympic awards “prescribed prizes,” which are tax-free. Such prizes include lottery winnings and awards like the Nobel Peace Prize.

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Instead, Olympic awards are taxed as “other income.” Steinberg notes some people think this is unfair. But “specific exemptions reduce fairness and add complexity to the Tax Act,” he says.

“Why single out Olympic athletes as the ones who shouldn’t pay tax? If you take a step back, there are not a lot of medal award winners in Canada. Coming up with a special exemption for say, 100 people [doesn’t make sense].”

He adds this issue makes headlines each time the games are played. But it dies as soon as it’s over.

“They talk about what these athletes are going to pay,” he says. “But [the media] always calculates it at the top tax rate, and very few athletes hit that bracket because this is their only income.”

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An alternative is to put the winnings in an amateur athletic trust, which is similar to an RRSP in that taxes are deferred until money is withdrawn.

However, Steinberg rarely recommends this. If a client has little income aside from their winnings, which is usually the case for Olympic athletes, he says putting it in the trust won’t help. “Because their income is so low, they would’ve paid little to no tax anyways.”

He adds the trust is only for amateurs, so those who play professionally can’t use it.

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And how does Canada compare to other countries? Australia has a two-tiered system. It doesn’t tax Olympic athletes if the winnings are their primary income.

“But if you’re an athlete who is going to capitalize on that Olympic income [e.g. through endorsements], then yes, you’re going to pay tax,” says Steinberg.

Originally published on Advisor.ca

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