ARCHIVED - Athletes and players employed by football, hockey and similar clubs

From: Canada Revenue Agency

What the "Archived Content" notice means for interpretation bulletins

NO: IT-168R3

DATE: May 13, 1991

Athletes and Players Employed by Football, Hockey and Similar Clubs

REFERENCE: Section 6 (subsection 2(3), sections 8, 115 and 212 and paragraphs 18(1)(p) and 125(7)(d) and the definitions of "retirement compensation arrangement" and "salary deferral arrangement" in subsection 248(1))


This bulletin cancels and replaces Interpretation Bulletin IT-168R2 dated November 28,1984. Current revisions are designated by vertical lines.


This bulletin deals with the taxation of Canadian resident athletes and players (and prospective athletes and players) employed by professional sports clubs, such as football, hockey and similar clubs that participate in leagues having regularly scheduled games. In this bulletin, these individuals are referred to as "players". The bulletin discusses the items to be included in the income for tax purposes of such players and the timing and manner of these inclusions, as well as the deductibility by these players of certain expenses. The taxation of non-resident players is briefly discussed. Finally, the bulletin explains the tax treatment applicable to players who receive employment income through a corporation rather than from the sports club directly.

Discussion and Interpretation

1. For tax purposes, a player's income from employment includes any of the following items received in respect of employment:

(a) salaries, including income from personal service contracts, (see 7 below),

(b) bonuses - for good performance, for allstar rating, for signing contracts, etc.,

(c) fees - for promotional activities or other special services performed on behalf of the club,

(d) living and travelling allowances (see 2 below),

(e) honoraria,

(f) payment for time lost from other employment,

(g) commuting expenses,

(h) free use of automobiles,

(i) awards - including cash and the fair market value of bonds, automobiles and other merchandise.

(j) payments made by a club on a player's behalf that would otherwise be a non-deductible expense to the player, such as agents' fees, legal fees, income taxes, fines, etc.,

(k) other benefits.

2. Players' living and travelling expenses that are borne by the club are treated as follows:

(a) Non-accountable allowances paid to players, including those paid in the training and tryout period, are income to the player unless they are exempt by virtue of:

(i) subparagraphs 6(1)(b)(vii) and (vii.1) (see the current versions of IT-522 and IT-272 on the subject of travelling expenses for employees), or

(ii) Subsection 6(6) (see also the current version of IT-91, Employment at Special Work Sites).

Where a non-accountable allowance is income to a player, the player may deduct reasonable expenses to the extent that the requirements of paragraph 8(1)(h) are met.

(b) Reimbursement of a player's properly vouchered travelling expenses incurred for away-from-home games, or any other bona fide club business away from the club's home base, are not considered to be income to the extent that the expenses are reasonable in the circumstances. Similar expenses paid directly by the club are also not considered to be income of the player. However, amounts paid by the club in respect of the player (or reimbursed to the player) for personal travelling, such as for personal vacations or for family members, are considered to be income from the player's employment.

(c) The value of dining and dormitory facilities that are available to all players during the training and tryout period are not regarded as income to the players provided that the amounts are reasonable in the circumstances. Where a player lives in the general location of the training and tryout camp, and for personal reasons commutes daily from home, any allowance paid to the player for travelling, meals, etc., will be considered to be for personal living expenses and will be included in the player's income; the employee will not be eligible to claim expenses pursuant to paragraph 8(1)(h) against this income.

Deferred Income

3. A contract of employment may state that part of the player's remuneration will be payable on a deferred basis, referring either to a part of regular salary, or to some special amount such as an annual bonus. Deferring (or advancing) payments such as salary or bonus can affect the player's level of income for tax purposes in a year. Because of the variety of arrangements that may be made, each case must be considered separately, with due regard to the terms of the employment contract and of any trust or other agreement entered into by either party pursuant to that contract, including an employee benefit plan. Plans or arrangements to defer the salary or wages of a professional athlete for services as such with a team that participates in a league having regularly scheduled games are exempted from the rules in the Act applicable to a "salary deferral arrangement", as defined in subsection 248(1). Such plans or arrangements will also be excluded from the provisions in the Act applicable to a "retirement compensation arrangement", as defined in subsection 248(1), provided, in the case of a Canadian team, that the custodian of the plan or arrangement is a trust company licensed to do business in Canada and carries on business through a fixed place of business in Canada. In such cases, the plan or arrangement is treated as an employee benefit plan; see the current version of IT-502.

4. Generally, however, the player should include deferred remuneration in income for the year in which the player actually or constructively receives it, rather than for the year in which it was earned but not received. Where the year of inclusion in income is after the player has ceased to be employed by a particular club, subsection 6(3) is applicable. (See the current version of IT-196.)


5. Where a player or former player is a non-resident or ceases to be a resident of Canada and receives remuneration or deferred remuneration on account of services performed in Canada for a Canadian club, the player will be liable for tax on that income pursuant to subsection 2(3), as calculated under section 115, except where the payment is one of those specified in section 212 to which Part XIII tax is applicable (for example, a retiring allowance or deferred profit sharing plan payments). Non-residents are also liable, by virtue of paragraph 115(2)(c.1), for tax on payments received for agreeing to enter into a contract for services to be performed in Canada (i.e. signing bonuses), for undertaking not to enter into such a contract with another party or as remuneration for duties or services to be performed in Canada, if the amount so received is deductible by the payer in computing income for Canadian income tax purposes. Consideration must also be given to the various tax treaties Canada has with other countries.

Deductions from Income

6. Players employed by sports clubs are limited to the same deductions from employment income as are available to any other employee by virtue of section 8. For example, fines paid by players personally are not deductible. Legal fees incurred in the negotiation of player contracts are also not deductible since paragraph 8(1)(b) stipulates that to be deductible, the fees must be incurred in collecting salary or wages owed by an employer or former employer or, after 1989, paid to collect or establish a right to such amounts.

Personal Services Business

7. Rather than employing a player directly, a sports club or organization may retain the services of a corporation with which the player is in turn engaged under a personal service contract. Income from such personal service contracts may be reported by a corporation if the services are in fact provided through the corporation and documentary evidence supports that fact. Such income will be considered to be income from a personal services business carried on by the corporation if it meets the definition of "personal services business". If it does, such income is taxed at full corporate rates. (If it does not, it may qualify for the small business deduction, provided the corporation is a Canadian-controlled private corporation.) Paragraph 125(7)(d) defines the expressions "personal services business" and "incorporated employee". These definitions deal with situations where a corporation has been interposed in what would normally constitute an employee-employer relationship. As a general rule, a corporation will be treated as carrying on a personal services business where a player:

(a) is, or is related to, a "specified shareholder" of the corporation, as defined in subsection 248(1), or

(b) provides services to a person or partnership that, in the absence of the corporation, would reasonably be regarded as the services of an officer or employee of the person or partnership.

An exception is provided where the corporation employs, throughout the year, more than 5 full-time employees or where the services are provided to an "associated corporation". For a discussion of the terms "personal services business" and "specified shareholder", see the current version of IT-73. The meaning of "associated corporation" is discussed in the current version of IT-64.

8. Paragraph 18(1)(p) restricts the deduction of expenses of a personal services business of a corporation to:

(a) the remuneration and the cost of other benefits or allowances provided to an "incorporated employee",

(b) certain expenses of the corporation associated with selling property or negotiating contracts that are ordinarily deductible from employment income, and

(c) amounts paid for legal expenses incurred by the corporation in collecting amounts owing for services rendered.

Paragraph 18(1)(p) ensures that the use of a personal services corporation does not permit the deduction of an expense which would not have been deductible had the income been earned directly by the player.

Endorsements and Public Appearances

9. Notwithstanding the above, income from the player's personal endorsements and public appearances negotiated between the player and third parties is business income against which necessary and reasonable expenses may be claimed. The contract may be structured to allow the income to be earned either directly by the player as business income or by a corporation as active business income subject to the small business deduction. Expenses claimed against such income could include costs of negotiating these endorsements and public appearance contracts, office expenses, travel expenses and accounting fees. Such income earned by a corporation is not income from a personal services business.

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