Take me out to the ballgame ... a familiar refrain heard across North
American ballparks with the start of Major League Baseball this week. The old
ditty, however, may take on a more supplicatory meaning this baseball season --
at least for U.S. baseball players and their support staff's friends and
With the start of the 2005 season, many returning players were angered to
learn that the Internal Revenue Service (the U.S. equivalent of the Canada
Revenue Agency) is cracking down on free tickets given to players for their
wives, family members and friends.
Late last month, Major League Baseball issued a directive to ensure that all
teams were co-operating with Uncle Sam's renewed enforcement of a U.S. rule that
requires players and other supporting team staff, who can typically receive up
to six free tickets per game, to report the value of such tickets as a taxable
While having to pay tax on the value of free tickets may not be that big a
deal for highly paid players such as Yankees pitcher Mike Mussina, who will pull
in US$17-million in 2005, it could impose a significant tax hit on lower-paid
players, coaches and other support staff.
Just do the math: Six tickets per game, for 81 home games at US$60 per ticket
is just over US$29,000. At a 40% marginal tax rate, the tax cost of these
so-called "free" tickets is US$11,600.
Could the same rules apply in Canada? According to Paul Godfrey, president
and CEO of the Toronto Blue Jays, "The issue has come up."
Mr. Godfrey says, however, that it is not considered to be a taxable benefit
in Canada because the players and staff only receive tickets for their wives and
families a few hours before game time, and they are tickets that "can't
[otherwise] be sold."
This position seems to be consistent with the CRA's longstanding
administrative position on employer-provided merchandise. It has always been the
CRA's view that if an employer sells its own merchandise to its employees at a
discount, the benefit is not generally considered to be taxable.
Note, however, that the CRA has stated this policy will not apply to an
arrangement that allows an employee to buy merchandise for less than the
employer's cost. Given that the cost of playing a baseball game is mostly, if
not entirely, fixed before the opening pitch is thrown out, any unsold tickets
would have no cost associated with them.
Randy Alldread, manager of public relations with Mirvish Productions in
Toronto, which has presented such smash-hit shows such as Mama Mia!, says that
while performers have "access to house seats, they must buy their tickets. By
paying with a personal credit card, they can avoid the service charges."
At the Toronto Symphony Orchestra, Liz Palmer, public relations manager,
explained that since the TSO's musicians are actually independent contractors
and not employees, the situation is a bit different. While the players are not
given any free tickets, they are entitled to purchase rush tickets at a discount
prior to the concert. TSO staff, however, are required to attend concerts as
part of their general employment duties, so no taxable benefit arises on the
value of those tickets.
The CRA has a similar policy with respect to commissions that sales employees
receive on employer merchandise they buy for personal use. For example, when a
life insurance salesperson purchases a personal life insurance policy on her own
life, the commission she receives is not taxable as long as she actually owns
the policy and personally makes the required premium payments.
So, how far can you stretch CRA's policy?
In 1993, the CRA was asked whether its administrative position could apply to
an employer in the residential construction industry that sells homes it
constructed to employees, at a discounted price that is not less than the
company's cost. The company claimed this would "provide an indication of the
confidence of a company's employees in the quality of the employer's product."
The CRA, however, disagreed, saying that "it was never intended that the
position extend to major capital assets such as a residential property.
Consequently, it is our view that ... a taxable benefit will result to that
employee." In 2001, the CRA reconfirmed its position.
GRAPHIC: Black & White
Photo: Mike Cassese, Reuters; The U.S. Internal Revenue Service is cracking the
whip to ensure that tickets received by Major League Baseball staff are declared
as a taxable benefit.