9 May 1995 External T.I. 9506595 - ATHLETES AND XXXXXXXXXX

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.

Principal Issues: (1) Does a XXXXXXXXXX organizer have to withhold taxes from winnings earned by foreign athletes?

(2) Will a T4A only have to be issued to Canadian athletes for winnings that exceed $500?

Position TAKEN: (1) Yes and (2) No.

Reasons FOR POSITION TAKEN:(1) see IC 75-6R where athletes are referred to specifically

(2) 56(1)(n) does not apply to athletes winnings

		950659
XXXXXXXXXX		M.P. Sarazin

Attention: XXXXXXXXXX

May 9, 1995

Dear Sirs:

Re: XXXXXXXXXX

This is in reply to your letter dated March 3, 1995 wherein you requested our comments regarding the taxation of prize/sponsorship and/or appearance fees paid directly to the athletes by the XXXXXXXXXX organizers (the "Payer").

With regards to payments to Canadian athletes, you are of the view that the first $500 received by the athlete is exempt from tax pursuant to paragraph 56(1)(n) of the Income Tax Act (Canada) (the "Act") and, consequently, the Payer is only required to report the amount in excess of $500 on a T4A. However, you are uncertain as to whether the Payer should apply for an employer remittance account before filing its T4-T4A Summary.

With regards to payments to foreign athletes, you are of the view that the Payer has to withhold tax at the appropriate rate outlined in Appendix A of Information Circular 76-12R4, issue a NR4B Supplementary to each foreign athlete and file a NR4B Summary for the particular year ended December 31.

Comments

We are of the view that the reference to "a prize for achievement in a field of endeavour ordinarily carried on by the taxpayer" in subparagraph 56(1)(n)(i) of the Act does not include a prize paid to an athlete participating in a sporting event. Consequently, an athlete carrying on a business will have to include the amount received from the Payer in his or her business income. The determination of whether an athlete is carrying on a business is a question of fact. The Taxation Guide: Athlete Trust or Reserve Funds prepared by Fitness and Amateur Sport in conjunction with Revenue Canada-Taxation and the Department of Finance discusses some of the factors that should be used in determining whether or not the athlete is carrying on a business. Since the Payer is not required to deduct any amounts from the amounts paid to the Canadian athletes, the Payer is not required to issue T4A's to the Canadian athletes.

We are enclosing a copy of Information Circular 75-6R ("IC 75-6R") dated January 15, 1988 which deals with "Required Withholding from Amounts Paid to Non-Resident Persons Performing Services in Canada". Paragraph 2 of IC 75-6R states:

"Some examples of payments commonly made to non-residents in respect of services rendered in Canada other than in the course of regular and continuous employment that are subject to the 15% withholding are

(a)fees or other amounts paid to ...

(ii) athletes, ..."

In addition, paragraphs 6 to 9 of IC 75-6R provide general comments with respect to the Payer's reporting requirements, paragraphs 10 to 16 of IC 75-6R provide general comments with respect to waiver applications, and paragraphs 17 to 19 of IC 75-6R provide general comments with respect to the foreign athlete's reporting requirements. A foreign athlete may be eligible to have the taxes withheld by the Payer refunded when he or she files a T1 Individual Income Tax Return. For instance, an athlete who resides in the United States may be exempt from tax in Canada under article XVI of the Canada-U.S. Income Tax Convention (1980) if the amount of the gross receipts received in the calendar year by the U.S. resident athlete from Canadian sources is less than $15,000.

In any case where the Payer is required to withhold taxes, the Payer should apply for an employer remittance account by contacting the local tax services office.

We hope that our comments will be of assistance.

Yours truly,

for Director
Reorganizations and Foreign Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch