Following the conclusion of the Paris Olympics in August 2024, UK tax experts have raised concerns that British athletes could face unexpected French tax liabilities on income generated from their sport. While athletes typically do not receive cash prizes for winning medals, French tax authorities can still impose taxes on income from sponsorship deals, endorsements, and appearances earned during their time in France. According to top Canadian tax lawyers, this tax obligation is not limited to British athletes but also applies to other non-French participants, including Canadian athletes. To avoid potential tax complications, organizers of the Paris 2024 Olympics released a tax guide before the Games, highlighting key considerations for athletes and their teams. Under French tax laws, athletes are taxed solely on their French-source income, subject to relevant tax treaties. The UK-France tax treaty, however, provides an exemption for UK-based athletes on income generated in France from activities funded by public money, local authorities, or statutory bodies, ensuring they are largely exempt from French taxation. However, the rules surrounding tax exemptions and deductible expenses for athletes can present challenges. One key condition for the French tax exemption is that payments to a non-resident athlete or artist “is not borne by a permanent establishment owned by the British employer in France.” For instance, if an athlete earns sponsorship income from a company with an office in France, they may still be liable for French taxes on that income.

How are foreign athletes taxed in Canada?

In Canada, tax obligations depend on an individual’s residence status. Canadian tax residents are taxed on their global income, while non-tax residents are only liable for income earned within Canada.

Non-resident athlete employees

According to Canadian tax law, non-resident athletes who are employed must submit a Canadian income tax return, disclosing all salaries, fees, and performance-related bonuses earned for services performed in Canada. If the non-resident athletes received a signing bonus for their work in Canada, they are required to report this bonus if it was claimed as a deduction by the payor on their Canadian income tax return. An athlete may be eligible for relief from Canadian taxes through a tax treaty. For example, the Canada-US Tax Treaty generally permits Canada to tax US athletes on income earned from performances within Canada. However, this does not apply to the employment income of American athletes who play in leagues with regularly scheduled games in both Canada and the US, such as Major League Baseball or the National Hockey League. For these athletes, the Canada-US Treaty includes a 183-day rule: Canadian tax on employment income is only applicable if the athlete spends more than 183 days in Canada during the year. Thus, whether a non-resident athlete is subject to Canadian tax often depends on whether he or she is employed by a Canadian or US-based team. For instance, NHL all-star and Toronto Maple Leafs captain John Tavares faced a tax court appeal in 2024, challenging the CRA’s claim that his signing bonus was taxable in Canada, which resulted in nearly $7 million in Canadian tax liabilities.

Non-resident independent contractor athlete

Like non-resident employee athletes, non-resident independent contractor athletes are required to report all income earned from Canadian sources. However, independent contractors typically do not have access to the same treaty relief benefits. For example, the Canada-US Tax Treaty permits Canada to tax American independent contractor athletes on all income from performances within Canada, regardless of the duration of their stay. Unlike employee athletes, there is no 183-day rule applicable to independent contractors. For independent athletes, any prize money and service fees earned in Canada are subject to a 15% withholding tax on the total amount received or credited. At the end of the year, the athlete must file a non-resident income tax return to report his or her total earnings from Canadian sources and deduct any expenses related to his or her activities in Canada. If the athlete operates through a corporate entity, that corporation will need to file a corporate income tax return.

Tax pro tips – Non-resident athletes must file a tax return in Canada

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 of success.

Frequently Asked Questions (FAQs)

Are non-resident athletes taxed by Canada on monetary prizes they earn in the country?

Whether a foreign athlete’s earnings are subject to Canadian tax depends on his or her classification as either an employee competing in a league (such as Major League Baseball or the NHL) or an independent contractor. For employees, a tax treaty might provide an exemption from Canadian tax. For example, the Canada-US treaty exempts employees from Canadian tax if they do not spend more than 183 days in Canada during the calendar year. Independent athletes are subject to a 15% withholding tax on their Canadian income and are also required to file a Canadian tax return for the year.

What tax relief does the voluntary disclosure application provide?

The Canada Revenue Agency’s Voluntary Disclosures Program (VDP) enables taxpayers to amend prior tax filings or reveal previously unreported information without incurring penalties or legal action. To be eligible for the VDP, taxpayers must meet certain conditions: the disclosure must be voluntary, comprehensive, involve the possible imposition of a penalty, and be made at least one year overdue. The program is designed to promote compliance by offering taxpayers an opportunity to rectify their tax issues.

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 articles. If you have specific legal questions, you should seek the advice of a Canadian tax lawyer.”