As Canada's Olympic medal count continues to rise, the obvious question among tax geeks is whether the bonus money Canada's athletes receive from the Canadian Olympic Committee is taxable.
The COC awards prizes of $20,000 for gold, $15,000 for silver and $10,000 for bronze medals at the 2010 Vancouver Games. Canada is catching up to U.S. medalists, who receive US$25,000 for gold, US$15,000 for silver and US$10,000 for bronze.
The prizes apply to each member of a team. For example, if Canada's women's hockey team walks away with the gold, each member of the team will receive $20,000.
Under the Income Tax Act, the general rule is that all prize money "for achievement in a field of endeavour ordinarily carried on by the taxpayer [other than a prescribed prize]" is taxable.
Last June, in anticipation of the Vancouver Games, the CRA was asked specifically whether the prize money awarded by the COC would be taxable. The CRA responded that the wording in the Act was "sufficiently broad" to apply to an Olympic medal prize.
What about the exception for "prescribed prizes"?
A prescribed prize is defined "as any prize that is recognized by the general public and that is awarded for meritorious achievement in the arts, the sciences, or in service to the public."
The concept of a prescribed prize was introduced back in 1987 (retroactive to 1983), shortly after John Polanyi won the 1986 Nobel Prize in Chemistry, opening a debate surrounding the prize's taxability.
Since then, the CRA has responded to several technical interpretation requests about whether various prizes could be considered "prescribed." Examples of prescribed prizes include the Nobel Prize and the Governor General's Performing Arts Awards.
As for an Olympics prize, the CRA responded that although winning an Olympic medal may be an internationally recognized achievement and could "indirectly promote a sense of nationalism," the prize is not awarded in recognition of public service and therefore cannot be considered a prescribed prize that would be tax exempt.
This is consistent with the tax treatment of Olympic prizes in the United States. There is even some precedent in the U.S. for taxing the actual value of the medal itself.
The U.S. case involved legendary shortstop Maury Wills, who played primarily for the L.A. Dodgers, but had a brief stint with the Montreal Expos in 1969. In January 1963, Wills received the S. Rae Hickok belt, awarded annually to the outstanding professional athlete of the prior year.
The value of the alligator-skin belt with a solid gold buckle and an encrusted four-carat diamond, worth more than US$6,000 at the time, was found to be fully taxable.
The judge, concluding that this was an inequitable result, predicted that absent a change in the U.S. tax law, "the next step would be for the Internal Revenue Service to tax the gold and silver in the medals awarded to Olympic Games' winners."