31 March 1992 Income Tax Severed Letter 9208535 - Amateur athletic trusts

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.

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

Subject: AMATEUR ATHLETIC TRUSTS Section(s): 18(1)(a), 18(1)(b), 18(9), 143.1(1), 143.1(2)]

March 31, 1992

Gord Murray Business and General
Current Amendments Division
Division W.P. Guglich
(613) 957-2102
920853

Amateur Athletic Trusts

This is in response to your request for our comments concerning certain specified items. Our comments follow:

MARCH 18, 1992 MEETING

2. Business Expense
(a) In computing an athlete's business income the deductibility of outlays and expenses is governed by various provisions in the Act. Some of the more common ones being:
• • Paragraph 18(1)(a) of the Act provides that the outlays and expenses are deductible in computing an athlete's income from the business to the extent they are made or incurred to earn income from the business. Paragraph 18(1)(a) is discussed in IT-487.
• • Section 67 provides that the outlay or expense is deductible to the extent it is reasonable in the circumstances.
• • Outlays and expenses are only deductible after the business has commenced. A business would not be considered to have commenced if there was no reasonable expectation of profit. Outlays and expenditures incurred prior to the commencement of the business are not deductible in the year and can not be carried forward to a future or subsequent year. Please refer to paragraphs 6 and 7 of IT-364.
• • Paragraph 18(1)(b) denies a deduction for capital outlays. This would include purchases of equipment, Such capital outlays would be capitalized and included in the appropriate Class in Schedule II of the Regulations.
• • Paragraph 18(1)(h) of the Act denies a deduction for personal or living expenses.
• • Subsection 67.1(1) of the Act limits the deduction to 80% respecting the consumption of food or beverages or the enjoyment of entertainment. Please refer to IT-518.
• • Paragraph 18(9) of the Act requires the athlete to match certain prepaid expenses to the taxation year to which they can reasonably be considered to relate. Please refer to IT-417R.
• (b) Subject to the above comments, expenses such as annual club fees for pool or ice usage, coaching and travel would be deductible. Although costumes are a capital expenditure, the appropriate Class is 12 (which is 100%). XXX , we do not consider the coaching of athletes to be akin to an education expense but to be more in the nature of training. In the case of education a skill or knowledge is acquired and retained indefinitely thereby creating a lasting advantage. Therefore such expenditures are considered to be of a capital nature. Training may be either capital or a current expenditure depending on the circumstances. In the case of coaching athletes very little is retained by the athlete indefinitely. Usually constant repetition and reinforcement is required to maintain and refine the various skills. For example a figure skater may learn to do the quadruple jump but unless he or she practices it on a regular basis the skater would not be able to land it on the day of the competition. Additionally an athlete can acquire a certain level of fitness or conditioning but this does not mean that he is fit for life. To maintain the necessary level of fitness the athlete must follow a regular fitness or conditioning program. In addition depending on the age of the athlete the coach may spend a great deal of time in the role of part surrogate parent and part psychologist. It is therefore our opinion that the better view is that expenditures relating to the coaching of athletes be considered a current expense and not a capital expenditure. The comments in IT-357R2 "Expenses of Training" are relevant by analogy.

XXX

The determination of "reasonable" as it relates to the deductibility of business expenses is normally handled by the Audit Directorate, as it is a question of fact in every case.

We trust this will be of assistance to you.

E. Wheeler
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch