Written by Mathieu Sabourin, Assistant Consultant, B.Comm., Adm.A., Pl.Fin.
August 20, 2013
Like most tennis fans, I spent the first week of August glued to the television, admiring the awesome performances of Canadian players at the Rogers Cup. Canadian tennis is evidently doing very well and this is not just a coincidence. A couple of years ago, Tennis Canada put a strategy in place to develop promising young players. This strategy is now coming to fruition, much sooner even than the experts had dared hope.
Tennis Canada provides technical and financial assistance to young players. However, they are not the only ones to invest in our future elite athletes. The young players’ parents also invest, emotionally but financially as well, throughout the athletes’ progress towards excellence.
Let’s take a look at the case of Eugenie Bouchard, whose parents recently lost their case against the Canada Revenue Agency (CRA). Here are the facts in a nutshell: as it is very expensive to train an individual to become a top-level athlete, Eugenie’s parents used an aggressive tax strategy that allowed them to deduct various expenses associated with her training. They created a limited partnership which deducted applicable expenses in return for a portion of Eugenie’s future earnings, once she becomes a professional athlete. This is an aggressive strategy but not necessarily an inappropriate one.
Why then did they lose their case before the Tax Court of Canada? The problem is not the strategy itself, but the way it was implemented. The strategy was rejected by the CRA because the link between the expenses incurred and the expectation of profit was not quite straightforward. It would have taken a contract with Eugenie (or her legal guardian since she was a minor at the time) that would have guaranteed a portion of her earnings to be paid to the partnership, making the potential for future profits more realistic.
Eugenie’s story shows that one needs to be very careful with aggressive tax strategies and use the services of a tax professional with a thorough knowledge of such strategies before implementing them.
As of August 12, 2013, Eugenie was ranked 62nd on the WTA ranking. She played her first professional match in 2008 at the age of 14 and won the Junior Championships at Wimbledon in 2012. In 2013, she made it to the third round at Wimbledon and the second round in Toronto.
Go Genie Go!
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