Dear Sirs:
Re: Deductibility of Consideration Paid for Player Rights
This is in reply to your letter of 24(1) concerning the deductibility, for purposes of the Income Tax Act, of consideration paid for player rights in the following hypothetical situation:
"A partnership (the "Partnership") will pay a fee to obtain membership in a professional sports league with all the privileges of membership, including a franchise for a team in a particular city, and the rights to select players with league experience from the present teams in the league and to priority drafting position in 1992 player drafts (such rights collectively referred to as the "Player Rights"). The Partnership will assume the obligations under the contracts of the players it selects from present teams and enter into new contracts with players selected from the 1992 player drafts."
It is our view that the portion of the fee as may reasonably be considered to relate to the cost of Player Rights will be deductible in computing the income of the Partnership for purposes of section 9 of the Act.
For purposes of section 9 of the Act the cost of the Player Rights may be deducted annually by the partnership on an amortized basis in computing its income. In making the amortization computations, the cost of the Player Rights may be amortized over the average remaining term of the player contracts acquired by the Partnership.
We trust our comments will be of assistance to you.
Yours truly,
Glen Thornley for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch