Eugenie Bouchard of Canada plays a return to Petra Kvitova of Czech Republic during their women's singles final at the All England Lawn Tennis Championships in Wimbledon, London, Saturday, July 5, 2014.Pavel Golovkin/The Associated Press
Eugenie Bouchard continues to rise toward the heights her father, Michel, always believed she would. But not as a tax deduction.
The Montreal investment banker was found to have double faulted in tax court last year, after he lost a four-year battle with the Canada Revenue Agency over an attempt to claim development-related expenses that contributed to making his daughter the Wimbledon runner-up, and a world sensation.
When his daughter was a budding tennis player at age nine, Mr. Bouchard established a limited partnership, called Tennis Mania LP, whose stated purpose was to promote junior tennis and financially assist promising young players. The partnership only funded two young players, Ms. Bouchard and Béatrice Gervais – the daughter of the other co-founder, François Gervais. Along with a third investor, Mr. Bouchard and Mr. Gervais contributed money to the partnership in exchange for a share of the players' future tennis earnings. (Mr. Gervais exited the partnership when it became clear his daughter was not going to turn pro.)
Mr. Bouchard argued that, because the young tennis players were not generating any income at the time, the money he put into Tennis Mania – $81,143 between 2005 and 2007, according to court documents – was a business loss and created a tax benefit for himself. The CRA disallowed the claims, which prompted a multiyear battle in the Tax Court of Canada. In August, 2013, the court backed the CRA's decision, that the partnership's investment in his daughter's tennis development was personal, and not a business venture.
Vern Krishna, a professor at the University of Ottawa who specializes in tax law, says, "I'm a big fan of Eugenie Bouchard, and I was disappointed to see her lose on Saturday." But Prof. Krishna did not view the limited partnership as favourably as Ms. Bouchard's tennis career, calling it "a very badly conceived plan, and ill-advised.
"I would hope her tennis career in the future is more successful than this tax planning."
Ms. Bouchard earned $1.6-million (U.S.) on Saturday for her second place performance at Wimbledon. The showing almost doubled the career earnings for the 20-year-old, who is now ranked seventh on the tour.
Before a player of Ms. Bouchard's calibre starts making money, however, the costs of training and developing them can be prohibitive.
"As the athlete goes through the system, obviously the costs increase dramatically," says Hatem McDadi, senior vice-president of tennis development at Tennis Canada. While competitive tennis costs are comparable to hockey until age 12, personal coaching, physiotherapy, and travel expenses can add up to hundreds of thousands of dollars in a player's teenage years. Players on the pro tour need to earn $150,000 to $200,000 in order to break even, he says.
Tennis Canada provides programs for promising prospects, such as training at the Montreal National Training Centre that is worth $75,000 to $100,000 anually. There's also the Top Player Pro in Transition program for players who are identified as having the best potential. The program is worth around $200,000 to $300,000 to selected players each year; donors and sponsors top up this funding for additional coaching.
With Ms. Bouchard's win at Wimbledon, she's now at the threshold where she has to return between $30,000 and $50,000 to Tennis Canada. Her father's partnership, however, has no legal claim.
The investors in the partnership had intended to make their contributions in exchange for 10 per cent of Ms. Bouchard's future tennis earnings, up to the amount they contributed, plus a 10-per-cent rate of return per year. But as the court ruling noted, Ms. Bouchard was never a party to the partnership despite being the source of its income – as a nine-year-old, she could not reasonably have consented to signing away part of her future earnings. Instead, Tennis Mania's business model relied on her goodwill to honour its terms. In the eyes of the law, that wasn't enough.
"They did not meet the essential requirements of a partnership, which is that it must be a business with a view to carry on with a profit," Prof. Krishna said.