Published: August 30, 2024
Last Updated: September 9, 2024
As the Paris Olympics ended in August 2024, tax experts from the UK warn that British athletes’ gold medals could quickly lose their luster if participants unknowingly become liable for French taxes on income generated from the sport. Although athletes generally do not receive monetary prizes for their successes at the Games, French authorities can still tax income derived from other activities such as sponsorships and appearances at events while in the country. However top Canadian tax lawyers advise this French tax applies to not only British athletes, but also other foreign non-French athletes including Canadians.
Organizers of the Paris 2024 Olympics have tried to pre-empt any friction by publishing a tax guide ahead of the Games, outlining some of the considerations for sports stars and their teams. For tax purposes, athletes are taxable in France exclusively on their French source income, subject to any applicable tax treaties. However, the tax treaty between the United Kingdom and France stipulates that, on French territory, activities financed by public funds, local authorities, or statutory bodies are largely exempt from tax for sports stars resident in the United Kingdom.
Still, there are also nuances in the rules that create obstacles for athletes trying to assess tax exemptions and deductible expenses. One condition for the French tax exemption is that the payment to the non-resident athlete or artist “is not borne by a permanent establishment owned by the British employer in France.” In the case of sponsorship, if an athlete receives income from a sponsor with an office in France, the athlete may be liable for tax on that income.
How does Canada tax foreign athletes?
Canada taxes an individual based on his or her tax residence status. A Canadian tax resident will be taxed based his or her worldwide income, while a non-tax resident is only liable for Canadian tax on his or her income earned in Canada.
Non-resident employee athlete
Under Canadian tax law, if a non-resident athlete is an employee, he or she must file a Canadian income tax return reporting all salaries, fees, and performance-related bonuses for services rendered in Canada. If the non-resident athlete received a signing bonus for performing in Canada, he or she must report the bonus to the extent that the payor claimed the bonus as a deduction on their Canadian income tax return.
The athlete may find some relief from Canadian tax under a tax treaty. For instance, the Canada-US Tax Treaty generally allows Canada to tax US athletes on income earned from performances in Canada. However, this rule doesn’t apply to the employment income of an American athlete who competes in a league with regularly scheduled games in both Canada and the United States (e.g., Major League Baseball players and National Hockey League players). For those athletes, the Canada-US Treaty applies a 183-day test: The non-resident athlete pays Canadian tax on their employment income only if their presence in Canada exceeds 183 days in that year. Therefore, whether a non-resident league athlete pays Canadian tax generally depends on whether they are employed by a Canadian- or US-based franchise. In fact, John Tavares, NHL all-star and Captain of the Toronto Maple Leafs is in such a dilemma and filed a tax court appeal in 2024 because the CRA alleged his signing bonus is taxable income in Canada which led to almost 7 million dollars in Canadian tax.
Non-resident independent athletes
Similar to non-resident employee athletes, non-resident independent contractor athletes must report all Canadian-sourced income. However, unlike their employee counterparts, independent contractor athletes generally don’t benefit from potential treaty relief. For instance, the Canada-US Tax Treaty allows Canada to tax American independent contractor athletes on all income earned from performances in Canada, regardless of the time spent in the country. In other words, there is no 183-day test for non-resident athletes who work as independent contractors.
For independent athletes, prize money and other service fees earned in Canada are subject to a withholding tax of 15% on the gross payments received or credited. At the end of the calendar year, the athlete will need to file a non-resident income tax return to report his or her gross earnings in Canada and offset such income with expenses associated with their activities in Canada. If the athlete conducts business using a corporate entity, that entity will be required to file a corporate income tax return.
Pro tax tips: Non-resident athletes need to file a Canadian tax return
If you are a non-resident athlete, you are still required to file a Canadian tax return. Failing to do so can result in penalties or prosecution. The CRA’s Voluntary Disclosures Program (VDP) offers a way to obtain relief from monetary penalties and criminal charges for those who qualify. However, to be eligible for the VDP, a Canadian taxpayer must meet several conditions. Additionally, you generally only have one opportunity to apply, so it is crucial that your application is meticulously drafted and prepared by a top Canadian tax lawyer. Besides, whether to accept your VD application is at the CRA’s discretion, therefore it is highly recommended to consult with a top tax lawyer to maximize your chance.
FAQ:
Does Canada tax non-resident athletes for their monetary prizes earned in Canada?
It depends on whether the foreign athlete is an employee who competes in a league (such as major league baseball or the NHL) or an independent athlete.
For employees, a tax treaty may exempt them from any Canadian tax, such as the Canada- US treaty which exempt employees from Canadian tax who didn’t spend 183 days in Canada in calendar year.
As for independents, there’s a withholding tax of 15% and the non-resident athletes also need to file a Canadian tax return for the year.
What is the voluntary disclosure application?
The Canada Revenue Agency’s Voluntary Disclosures Program (VDP) allows taxpayers to correct previous tax filings or disclose information not reported in past tax returns without facing penalties or prosecution. To qualify for the VDP, taxpayers must meet specific criteria, including making the disclosure voluntarily, being complete, involving the potential application of a penalty, and being at least one year past due. The program aims to encourage compliance by providing a second chance for taxpayers to correct their tax affairs.
Disclaimer: This article just provides broad information. It is only up to date as of the posting date. It has not been updated and may be out of date. It does not give legal advice and should not be relied on. Every tax scenario is unique to its circumstances and will differ from the instances described in the article. If you have specific legal questions, you should seek the advice of a Canadian tax lawyer.
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