No Losses for Eugenie Bouchard

At the age of 19, Eugenie Bouchard made all Canadians proud with her stellar performance at the 2014 Australian Open.  Behind the tennis star is more than a decade’s training paid for by her father.  Mr. Bouchard thought he found a way to deduct Eugenie’s tennis expenses as business losses, but the Tax Court of Canada denied the deductions in its decision in Bouchard v. The Queen.

In 2003 Mr. Bouchard created a partnership, the stated purpose of which was to support promising junior tennis players.  At the beginning, the partnership funded two players, Eugenie and Beatrice, but when Beatrice turned out not to have the potential to play at the professional level, the partnership stopped funding her.  So then the only purpose of the partnership was to finance Eugenie’s development as a professional tennis player.  There was an understanding that once Eugenie turned professional, she would pay the partnership a portion of her tennis earnings.

In a typical year, Mr. Bouchard would deposit an amount equal to what he had paid for Eugenie’s training in the year and immediately withdraw the same amount as a reimbursement to himself.  This amount would then be claimed as a partnership business loss for the taxation year.

The Court held that Mr. Bouchard could not deduct the expenses he incurred for Eugenie as business losses because they were personal expenses.  The Court emphasized in its reasoning that the partnership was not legally entitled to Eugenie’s earnings.  Since Eugenie was only 9 at the time, she did not have the legal capacity to sign away her future earnings.  Therefore, the partnership did not have a reasonable expectation of profit.  The takeaway lesson is that parents may not be able to deduct expenditures associated with a minor child’s athletic activities even if the child turns out to be a successful professional athlete such as Eugenie.