Tax Articles
Taxman lines up Canadian curlers for a hit
By Bruce Ball, CA, CFP
BDO Dunwoody LLP
Toronto
Competitive Canadian curlers beware: the taxman might be warming up to put a hit on your winnings.
After years of playing for little more than gas money, Canada’s curlers have finally started to score some serious cash prizes. Unfortunately, the Canada Revenue Agency (CRA) has taken notice.
Recently Ontario skip Wayne Middaugh, who reportedly made $300,000 in the last three years from curling, received a notification from the CRA who want to look into his “substantial earnings.” Other champions fear they’ll face similar scrutiny, with dire consequences for the sport.
In a way, BDO Dunwoody LLP may have inadvertently contributed to this situation. An avid supporter of Canadian curling, BDO in the last few years has raised the purses for the both BDO Curling Classic men’s and women’s tournaments to $100,000 each.
With big money on the ice, it was inevitable Ottawa would sit up and take notice. For the professionals, however, now might be the time to seek out some professional tax advice. What separates professionals from non-professionals in the eyes of the CRA is the expectation of earning an actual income from Canada’s other national sport.
The good news is the majority of curlers don’t need to worry about a double takeout by the taxman. Winning a new TV at the local bonspiel still falls into the same tax-free windfall category as winning the lottery.
Where the prizes becomes taxable, however, is when competing is seen as part of an organized business or “an adventure in the nature of trade” where’s there’s an expectation to earn net income after expenses.
The winnings don’t even have to be that substantial before they face taxation. Even for a major event like the BDO Classic, the top prize money works out on average to $7,500 per person. Given the field this past year, finishing fourth would be a pretty good result, but the winnings in that case are only $3,000 per team member. Curlers speak the truth when they say they won’t get rich at their game.
Unfortunately, that’s not the point.
A good parallel example in this case is a full-time employee who runs his or her own business on the side. While the income from these ventures might be small, the entrepreneur must still pay tax on their net income – all of it.
It’s important to note the tax rules haven't changed – but curling certainly has.
At the top level, curling has become more organized and more profitable. The sport has reached the point where elite teams may now start the season with an expectation of earning more in income than they pay out in expenses. If so, it’s difficult to argue any of their winnings are a windfall, and therefore tax-free.
But the broom sweeps both ways. If the CRA believes the champs have an expectation of profit, then it can’t tax a team’s net income during one good year, while at the same time disallow losses during a bad year.
In particular, on a go-forward basis, the CRA can't use hindsight to tax one team and deny losses for another if both teams had similar expectations at the beginning of the season.
In the past, the CRA likely realized that categorizing curling as a business activity was a waste of time. It didn’t make sense to sort through all of the earnings and expenses, as any net profit would be nominal at best.
And even with the higher prize money, very little tax money is likely at stake. If you take the total income and total expenses on a combined basis for the top 20 teams in Canada, the overall profit is likely not very significant – if it exists at all.
But, until the CRA decides on whether curlers are in the business of making money and joining the ranks of professional athletes, the best advice is to keep track of your receipts. With proper records, curlers will only pay tax where they have actually made a profit once all of their expenses are deducted.
Bruce Ball, CA, CFP, is a Partner in the BDO Dunwoody's National Tax practice, where he helps produce the firm's tax publications, as well as developing tax planning strategies for clients. He’s co-author of The Guide to the Family Business, Canadian Edition.
For further information, please contact Bruce Ball at bball@bdo.ca or 416-369-3096; or Gordon Lee, National Director of Marketing and Communications at glee@bdo or 416-369-3050.
