2023-0964831I7 Guaranteed payments to non-resident athletes

Principal Issues: 1. Whether payments made to a non-resident athlete employed by a Canadian team while the athlete was injured and outside of Canada are income from performing duties of office or employment in Canada? 2. Whether payments made to a non-resident athlete that is released by a Canadian team for the remainder of the term of his contract and while the athlete does not perform any services for that team are income from performing duties of office or employment in Canada?

Position: Such payments are not income from performing duties of office or employment in Canada, hence are not taxable income earned in Canada.

Reasons: Such payments are not attributable to duties of employment performed in Canada.

Author: Grégoire, Sylvain

Judith Mahoney
Senior Program Officer
Collections and Verification Branch                                                 2023-096483
Business Compliance Directorate                                                   S. Grégoire
Employer Compliance Division
Policy and Legislation Section


April 16, 2024


Dear Ms. Mahoney,

Re : GUARANTEED PAYMENTS TO NON-RESIDENT ATHLETE

This is in reply to your email of February 10, 2023 asking how guaranteed payments are to be taken into account in determining the taxable income earned in Canada, under subsection 115(1), of a non-resident professional athlete earning employment income from a Canadian based team (“Team”).

The facts as we understand them can be summarized as follows:

1. The athlete entered into an employment contract to perform services for the Team inside and outside of Canada from 20X1 to 20X6.

2. He continued to be a resident of the United States throughout the period for which he was an employee of the Team.

3. During the 20X3 season, he suffered a serious injury that kept him from playing for the remainder of the season.

4. He did not play any games during the 20X4 season due to this same injury.

5. In XXX Month 20X4, the Team released him. He was therefore free to offer his services to any other team in the league. It is important to note that there were 2 seasons still remaining on his contract at that time, i.e., 20X5 and 20X6.

6. According to the terms of the agreement which provided for salary protection in certain circumstances even if he was not able to perform any services for the Team for part, or all, of a year, he continued to receive his full salary for the 20X4, 20X5 and 20X6 seasons (the “guaranteed payments”).

7. An American based team hired him in 20X5.

Our Comments

Pursuant to paragraph 2(3)(a), where a non-resident person was employed in Canada at any time in a taxation year, the person is subject to tax on the person's taxable income earned in Canada for the year. Subparagraph 115(1)(a)(i) includes in taxable income earned in Canada, “income from the duties of offices and employments performed by the non-resident person in Canada”. Where the duties of employment “were performed” partly in Canada and partly in another country, paragraph 4(1)(b) provides that the “income […] from […] the duties performed” in Canada is the income “from the part of those duties that were performed in [Canada]”. Similarly, that provision provides that the deductions are those that “may reasonably be regarded as wholly applicable to that part of […] those duties […] and […] such part of any other deductions as may be reasonably be regarded as applicable thereto”.

The guaranteed payments in question in this case arose from the occurrence of two distinct events. First, the athlete was injured and was unable to provide any services to the Team for part of the 20X3 season and the entire 20X4 season. Then, the athlete was released by the Team after the 20X4 season with two more seasons remaining under the terms of his contract which means that he did not perform any services for the Team for the 20X5 and 20X6 seasons. The Team was required to make the guaranteed payments to the athlete for the agreed salary with the Team.

With respect to the guaranteed payments for the 20X5 and 20X6 seasons, we understand that they were not made due to the termination of the employment relationship but rather under a salary protection clause and on that basis, are not a retiring allowance as defined under subsection 248(1). The guaranteed amounts paid to the taxpayer during the 20X4 to 20X6 seasons despite his absence from the Team, whether attributable to his injury or to the fact that the Team released him from his obligations under his employment contract, consist in income from the duties of office or employments according to the provisions of his contract ensuring him full salary protection in such circumstances.

Given that the athlete is a non-resident, it is necessary to determine for purposes of paragraph 2(3)(a) if the employment income earned by the athlete in the relevant taxation years is considered to be “from the part of those duties that were performed in [Canada]” according to paragraph 4(1)(b). In the case at hand, the physical presence of the athlete is necessary for the performance of the duties described in the agreement and on that basis, determines where the services are rendered for these taxation years.

In Nonis v The Queen, 2021 TCC 31, at paragraph 68, the Court determined that the “relevant factor to be considered [for a non-resident individual] is whether the remuneration is attributable to duties performed in Canada”. In that case, the appellant’s employer had determined that it was no longer necessary for the appellant to report to work. However, the employment contract guaranteed the remuneration of the employee for the remainder of the contractual period. The question submitted to the Court was not to determine whether the income was earned from duties of office or employment but rather to establish what amount of the non-resident’s income was taxable in Canada. This question arose due to the appellant's physical absence from Canada following his dismissal and his non-resident status for Canadian income tax purposes. The Court concluded that the amounts received after his dismissal were not taxable in Canada since the non-resident was not present in Canada during the relevant periods.

In the present situation, since the performance of the duties of the non-resident athlete requires his physical presence, paragraph 2(3)(a) read in light of subparagraph 115(1)(a)(i) and paragraph 4(1)(b) provide that the guaranteed payments made by the Team to the non-resident athlete in the relevant taxation years are part of his income to the extent that they are attributable to duties performed in Canada. For the 20X3 season, we understand that part of his duties were physically performed in Canada. However, the guaranteed payments for the 20X4, 20X5 and 20X6 seasons did not relate to duties that were performed in Canada during those seasons as he was not physically present to perform these duties.

Although there may be situations where all or a portion of the employment income that is paid is for services rendered in prior years, this does not seem to be the case in the present situation since the remuneration provided for by the contract for the 20X5 and 20X6 seasons relates to services which should have been rendered during this period in the event that the player had not been released from his obligations and therefore were not for past services that were rendered by him while physically present in Canada.

Unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency’s electronic library. After a 90-day waiting period, a severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. You may request an extension of this 90-day period. The severing process removes all content that is not subject to disclosure, including information that could reveal the identity of the taxpayer. The taxpayer may ask for a version that has been severed using the Privacy Act criteria, which does not remove taxpayer identity. You can request this by e-mailing us at: ITRACCESSG@cra-arc.gc.ca. A copy will be sent to you for delivery to the taxpayer.

We trust that these comments will be of assistance.

Yours truly,



Yves Grondin
Section Chief
for Director
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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