Federal Budget 2014: Prepping amateur athletes for their golden years

Tom Hall wasn’t thinking about saving for retirement when he crossed the finish line in Beijing.

“When you’re in the thick of training for the Olympics, any thought of what comes after often gets pushed aside,” said Hall, who won bronze in the 1000 meter C-1 canoe sprint during the 2008 summer Olympics. “It can almost be a distraction to think about the future too much. You need to be in the now.”

Contributing to a RRSP during his career would have been a pipe dream, says Hall.

“Many athletes are broke. When you’re on the senior national team, funding is $1500 a month.”

The small stipend doesn’t leave much wiggle room, after living and training expenses. It also doesn’t provide much of an opportunity for amateur athletes to take advantage of the proposed amendment in the 2014 federal budget, designed to help athletes save for retirement.

The budget allows for athletes to count income received from endorsements, public speech engagements, prize money and other income related to their athletic career to their RRSP contribution limit. Before the change, an athlete’s income, sheltered from income tax by the Canadian Amateur Athletic Trust, couldn’t be counted towards their RRSP contribution limit—essentially disabling them from making large contributions.

The problem is, with little money to contribute to a RRSP, few athletes will be able to invest during their career, said Ian Lee, a business professor at Carleton University.

“Unless an amateur athlete hits the gravy train with a major endorsement from Nike or another major brand, contributing to an RRSP is not worth it,” he said.

Any income contributed to a RRSP is sheltered from income tax until it’s withdrawn, which usually occurs during a RRSP holder’s retirement. The simple rule of thumb when investing into a RRSP is to contribute to one when you are in a higher tax bracket than you will be during retirement. Then, when you withdraw funds from the account, you will be charged at a lower income tax rate, says Emily Gray, a chartered professional accountant.

Contributing to an RRSP is more beneficial the higher the tax bracket, given our progressive tax structure,” said  Gray “As such, those in lower income tax brackets won’t benefit as greatly through a reduced tax bill. I know my personal financial advisor tells all his clients not to bother contributing to their RRSP’s unless they are in at least the third tax bracket, where they make at least $88,000.”

Opting to invest in a Tax Free Savings Account might be a better move for athletes, said Gray. While they do not give you an immediate tax incentive, any savings growth in a TSFA is tax free and it can be withdrawn from at anytime.

Since an athlete’s tax on earnings is already deferred by the athletic trust, there is little incentive to invest in a RRSP while competing. However, the higher contribution limit can be used to shelter other taxable income or it can be accumulated for retirement. It can be particularly useful when a former athlete has to close his trust.   

“An amateur athlete trust must effectively be [closed], at the latest, eight years after an athlete ceases competing as a Canadian national team member, at which point the tax deferral on amounts in the trust ends,” said Amy Karlin, a spokesperson for the Department of Finance. “To achieve this, an athlete could accumulate the additional RRSP room to absorb distributions from an amateur athlete trust on its [closure].”  

While the amendment may help amateur athletes save for retirement, it does not help them now.  Helping athletes in the immediate future is a more pressing issue, says Hall.

“The bottom line with RRSPs is it’s a good idea, but it probably won’t do much to help athletes,” said Hall. “A simple move would be to change the amount members on the national team receive to $2,000. It hasn’t budged since 2004.”