15 July 1992 Income Tax Severed Letter 9204805 - Does Association of Racing Car Teams Qualify as a League

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

920480
      24(1)                                K.B.Harding
                                           957-2111

Attention: 19(1)

July 15, 1992

Dear Sirs:

Re: Article XVI of the Canada-U.S Income Tax Convention (the "Convention")

This is in reply to your letter of February 12, 1992 wherein you requested our opinion concerning Article XVI of the Convention.

Your letter indicates that you are concerned with an association of professional racing car teams, comprised of one driver and a pit crew per team, who will compete against each other on a regular basis in car races organized by the association in the eastern regions of both Canada and the United States.

You questioned the meaning of the word "league" as used in paragraph (3)(a) of Article XVI of the Convention and how that paragraph would apply to the above situation.

Paragraph 3 of Article XVI of the Convention provides that:

"The provisions of paragraphs 1 and 2 shall not apply to the income of:

(a) An athlete in respect of his activities as an employee of a team which participates in a league with regularly scheduled games in both Contracting States; or

(b) A team described in subparagraph (a)."

Based on the limited information submitted it may be arguable that the association of professional racing car teams as set out above may qualify as a league, however, it is our view that racing car drivers do not fall within the words "...participates in a league with regularly scheduled games in both Contracting States". It is our understanding that the exemption from the application of paragraphs 1 and 2 of Article XVI of the Convention provided in paragraph 3 of Article XVI of the Convention was intended as a concession to hockey and baseball players etc. where the teams are required to compete in all games in a regular schedule. In addition to not being contemplated when the Convention was negotiated, our understanding is that the racing car teams would generally not be required to enter each event, and may not be in a position to enter every event because of car crashes, blown engines, hurt drivers, etc.

It should also be noted that while a racing car driver would qualify as an "athlete" for purposes of the appropriate article of our income tax agreements and conventions other team mates, such as pit crews, would not fall within that term.

We trust the above comments will be of assistance to you.

Yours truly,

for Director Reorganizations and Non-resident Division Rulings Directorate Legislative and Intergovernmental Affairs Branch

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