Golf – The Business, Social and Income Tax Aspects

I have had enough with winter! So I thought a great way to take our minds off ice storms and cold weather would be to talk golf. Readers of my blog know that I am a golfer. Of all the sports I have played, golf has been far and away the most difficult to master. However, the beauty of golf is that you do not have to be a scratch golfer to enjoy the game and the social aspect is by far the most enjoyable of any sport (especially for trash talkers like me). When you have some semblance of a golf game and some degree of social skills, various studies

Pebble Beach

suggest golf is an excellent business tool.

Today, I will look at the various studies and articles out there examining whether or not playing golf can increase one’s wealth (because of the business conducted on the course and the business connections made) and since this is a tax blog, review the income tax implications of the costs associated with playing the game.

The Perception vs. the Reality

Many people perceive golf as a rich man’s sport or a game for the elite, yet the lineups at public courses suggest otherwise. According to the National Golf Foundation, only 10% of the 26 million golfers in the USA belong to private clubs. Thus, golf may be a way to climb the social and monetary ladder even if you do not belong to a private club. Melissa Leong of the National Post suggests golf may help if you plan on raising you child to be a CEO.

Golf and Remuneration

There has only been one definitive study of the correlation between golf and increased wealth. This study called “Illusory correlation in the remuneration of chief executive officers: It pays to play golf, and well” was authored by Gueorgui Kolev and Robin Hogarth of the University of Pompeu Fabra in Spain. Although the study relates to CEO's, I assume it would translate down the corporate ladder.

In the abstract to the paper, the authors state; “although we find no relation between handicap and corporate performance, we do find a relation between handicap and CEO compensation. In short golfers earn more than non-golfers and pay increases with golfing ability”. The paper quantifies the “golfer’s advantage” by stating “CEO’s who are not regular golf players receive about 17% less in total ex-ante compensation.”

Predator Ridge

The authors argue that golfing ability confers an intangible “halo” effect on the CEO. They state “the presence of the illusory belief that golf playing abilities correlate with shareholder value maximization abilities prompts the relevant decision makers to confer higher pay on CEO’s who are good golfers”. Mr. Hogarth and Mr. Kolev say remuneration decisions “involve a host of tangible and intangible measures ranging from concrete indicators of past performance to the observation of ‘soft’ social skills and even physical appearance. (Blogger note: There have been studies that taller CEO’s also make more money.) Moreover, in the USA golf clubs provide locations in which the relevant actors socialize and can judge each other on a variety of dimensions. In this milieu, then, we suspect that being a good golfer is a positive attribute, generating its own ‘halo’ effect.”

Building Relationships and Making the Deal

Josh Sens in a Golf.com article entitled The 8 Rules of Business Golf says “Golf isn't merely a leisure sport. It's the martini lunch of the modern workforce, the buoyant venue where business gets done”. I think Josh may be a bit enthusiastic, but clearly his point is that the golf course is a great place to get business done. He does suggest you do not talk business before the 5th hole or after the 15th hole.

According to Golf Digest, Jim Crane the current owner of the Houston Astros baseball team had the lowest handicap of any CEO in 2005. In discussing the business opportunities the game provides, Crane said that “nowadays, most of his golf is business-related" and "if you can't close in four hours, you can't sell."

Comic by Andrew Grossman

For those interested in refining their skill at closing a deal on the golf course, this Forbes article provides 19 tips from business golf experts.

Golf May Be Good for Business, but the CRA Does Not Care

As I will detail below, notwithstanding the many deals that originate or are consummated on the golf course, the CRA is not very keen on providing income tax benefits. I wondered why the CRA held this point of view, until I found these comments by Jamie Golombek, Managing Director, Tax and Estate Planning of CIBC Private Wealth Management who wrote the following in the National Post in his May, 2011 article titled,  "Tax law takes 9 iron to golf deductions".                

Jamie notes that the Department of Finance in 1996 said the limitation on the deductibility of golf is “designed to ensure that businesses assume their fair share of the tax burden and to prevent ordinary taxpayers from subsidizing the deduction by businesses of entertainment expenses that are altogether discretionary.” The CRA is of the view that the direct business purposes of golf is "accessory or subordinate to the recreational or personal nature of the..golf activity".

If there is one expense my clients are incredulous about, it is golf related expenses. They cannot believe the restrictions the Income Tax Act places on various golf related expenditures. I detail these restrictions below:

Green Fees and Club Rentals

Expenses incurred for green fees and golf equipment rentals are not deductible under subparagraph

The BBC in his Rickie Fowler attire at Predator Ridge

18(1)(l)(i) of the Act.

Membership Fees and Dues

Subparagraph 18(1)(l)(ii) prohibits the deduction of all membership fees or dues (whether initiation fees or otherwise) in any club whose main purposes is to provide dining, recreational or sporting facilities for its members.

Meals

At one time, the CRA did not allow you to deduct meals at a golf club if they were part and parcel of your golf game, but allowed meals if you were not there to golf, but for a business purpose. That ridiculous rule was, for obvious reasons, later changed.

The current rule is; where there is a business purpose with respect to a meal, reasonable amounts expended for meals and beverages consumed at a golf club are deductible, subject to the 50% limitation in section 67.1 of the Act. As with all meal and entertainment expenses, you should note on the back of the receipt who you took for lunch, dinner or drinks.

As discussed above, there is no dispute that playing golf can lead to increased business sales and increased remuneration. However, the CRA clearly wants you to golf on your own dime – notwithstanding the fact that golf may actually be one of the greatest generators of business and business leads within certain industries.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

Cactus, Mountains and Air Canada

In the last month or so, I have posted on some heavy duty topics such as can you control your estate from the grave and Alzheimer's in the digital era. In addition, I have had some very detailed tax blogs on such topics as how to calculate the adjusted cost base of cottages and the the business and income tax issues in selling a corporation. Thus, today I thought I would lighten things up a little (and write a post that did not require much mental energy) and consequently, I am posting a mini travel review and a rant against Air Canada U.S. baggage fees.

View from balcony of Copper Wynd

Following the conclusion of income tax season, I quickly escaped for some R&R with my wife and two kids to Phoenix. We decided upon Phoenix because we like hiking (for those who have never been to Arizona, there are a surprising number of mountains such as Camelback Mountain), the golf is great and there is some excellent shopping and restaurants.

Previously, my wife and I stayed at the Boulders Resort just outside Scottsdale in Carefree, a high-end resort with two great golf courses on the premises and excellent spa facilities. I would definitely recommend the Boulders if you are willing to spend the money (since we go in May, the prices are typically reduced substantially).

This trip we stayed at the CopperWynd Resort, again outside Scottsdale in Fountain Hills. The pricing for this resort was more affordable than the Boulders, but the service and amenities are not at the same level as the Boulders. Unlike the Boulders, there are no golf courses on CopperWynd’s premises; however, SunRidge Canyon and the very highly rated We-Ko-Pa golf clubs are just minutes away. My wife reports the spa facilities were very good, but not as extravagant as the Boulders. We had an excellent dinner, but the dining room is only open for dinner. A huge plus for us was that at the Copper Wynd you could walk out of your hotel room door and be climbing a mountain within minutes. In addition, the view from our balcony was spectacular. Both these resorts have their pluses, but if you are the type of person that needs to be pampered and wants all your amenities self-contained, the Boulders would probably be your choice. However, if you are willing to drive ten minutes to the golf course and do not need a valet for your car, the Copper Wynd is a great, more cost effective alternative.

Anyways, the above was just a quick travel review for anyone considering Arizona; now to my Air Canada rant.

Sedona

The cost of our flight to Phoenix, which we booked a couple months in advance, was in my mind fairly reasonable for a Toronto departure, at $542 return. The usual surcharges, fees and taxes for the four tickets were another $575, essentially the cost of another flight, but I am not telling you anything you do not know already.

About ten days before the flight I remembered to call Air Canada to inform them that I was taking two sets of golf clubs (Air Canada always tells you to inform them you are taking golf clubs, but I am not sure what happens if you do not call in advance). I was expecting to pay $50 or so for the two sets of clubs each way. However, as I age, I tend to forget certain facts that I don’t want to remember. One of those little facts that slipped my mind was the fact Air Canada charges a baggage fee for U.S. flights. The baggage fee for four suitcases (one for each of us) and two golf bags came to $168 dollars each way, for a total of $336 return. So, we had to pay an additional 42% in various fees and baggage charges on top of our four flight purchase. (I realize that if I flew from Buffalo, the cost of the flight and fees would probably be less and on Westjet, the first bag to the U.S. is free).

For those fees we received the following:

1. Mechanical issue delaying Toronto take-off about 50 minutes.
2. A further 20 minute delay after the mechanical delay waiting for two passengers to be escorted off plane. I was told by other passengers who were seated in the area that one passenger had a severe peanut allergy and was not allowed on the plane for some reason. I have no idea if that was true or not, but all I know is we were over an hour delayed leaving.
3. Upon arrival in Phoenix, there was a problem with the bridge door (a Phoenix issue, not an Air Canada issue) which would not open, so we had to be towed to another door. At this point I was now going to be nip and tuck to make my first golf game.
4. The return flight was uneventful until we were informed there was a problem with the baggage door, it could not be opened; and we waited another 40 minutes to get our baggage.

All in all, we had an excellent family vacation. However, it would have been nice to not have wasted a few hours on various flight issues and the baggage fees are just a cost that is hard to accept.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

Pebble Beach Golf- A worthy bucket list item

In my July 20th blog “One-item to shortly be crossed off my bucket list-Pebble Beach” I mentioned that I would be golfing at the famed Pebble Beach and Spanish Bay golf courses. This blog details these games, so if you are not into golf you may want to hit the escape button.

The first decision I needed to make in regard to this golf outing, was whether to stay at Pebble Beach, Spanish Bay, or a local hotel. Both these resorts are beautiful, but extremely pricey. However, if you stay, you are guaranteed a tee time. My friend Harvey and I decided we would splurge and stay at Spanish Bay, as the last thing we wanted was to arrive and not get a tee time.

Our second decision was whether to hire a caddy. We decided on a caddy as Harvey and I wanted to get the true feel of the course by walking and we wanted to have time to take pictures. We were provided one caddy for both of us. To our distress, he took our clubs from our bags, placed them in lighter Pebble Beach golf bags, and left most of our golf balls behind. We figured we would need many balls, however Michael, our caddy, said we wouldn’t; this was just the first of many correct calls Michael made that day. Michael’s reads and calls on many putts Harvey and I initially misread proved invaluable and saved us several strokes.

As a 12 handicap golfer (or at least a 12 handicap under my weekend rules), my goal for Pebble Beach was to shoot below 90 and birdie one hole. We decided to play the gold golf tees, which are 6450 yards. Harvey and I figured between the wind and the difficulty of the course, the gold tees would be challenge enough.

Harvey hit a great first drive, but I was so amped up to play that I had first hole jitters and mis-hit my first tee shot. Luckily I hit a great second shot and was able to scramble to a bogey on the first hole. I calmed down on the second hole; a short 460 yard par 5. I am a long hitter and I hit two long shots, such that I was just off the green in two. I then two putted to achieve my first goal, a birdie at Pebble Beach. To my amazement, I then birdied the 3rd hole, thanks to a great putt read by Michael. By the end of the fifth hole I was even par. I could not believe it. Michael, however, put me in my place quickly when he noted that Bing Crosby always said you better score very well on the first 5 holes, because after that the course will get you.

Holes 6 through 10 are the reason I have always wanted to play Pebble Beach. They run along the Pacific, with the surf crashing against the rocky outcroppings. They also have cliffs, which are what really drew me to Pebble. I always remember watching Tiger Woods with the TV camera behind him looking up this huge cliff on the sixth hole and having to hit over it. That cliff will now give me nightmares forever.

The 6th hole is a par 5 and I hit a very long drive down the right side. When I approached my ball I realized I was now facing the same shot Tiger had faced. Michael, who at this point had a feel for my game, said “take a 3 wood and hit it over the cliff to the right and you will probably hit the green.” I only saw cliff. I said no way because I did not trust my 3 wood to hit over the cliff and I wanted to play it safe and keep my score intact. I decided to hit my five iron, hopefully to within 50-70 yards of the green. However, that cliff just kept staring back at me and I was psyched out. I tried to take a nice easy swing and not be fazed by the cliff, however, I stopped my swing and watched in horror as my shot bounced off the cliff and dropped what seemed like 500 yards into the Pacific Ocean. I was dejected and Michael gave me a “you should have listened to me look,” however, I saved a double bogey.

The dreaded cliff

The next hole is the famous 7th hole. It is only a 100 yard par 3. I am told it often plays at 100 yards even for the US Open. From an elevated tee you hit straight out toward the Pacific Ocean, with nothing in the background, trying to account for the wind. I took out my 56 degree wedge and swung easily hitting a nice high arcing shot I expected to land in the middle of the green. However, the wind had other ideas and it rolled over the back of the green clinging to life in the rough on a downhill slope. With another double bogey, I was quickly four over.

7th hole-Par 3

Wikipedia describes the 8th hole as follows: “The long par 4 runs alongside the 6th hole leaving the peninsula and heading back toward the coastline. A dogleg right, the ocean is a constant companion along the entire right side of the hole. The landing area is extremely generous in width, but a long straight drive could leave the fairway and enter an inlet of the sea. Because the landing area is elevated on a cliff above the green, players have a good view of the small landing target a mid to long iron away. Jack Nicklaus has called this his favourite approach shot in all of golf.”

This hole was as described and the approach shot was as amazing as you’d expect given that it’s Nicklaus’s favourite. I hit a long drive and a seven iron to the left of the green and took a bogey.

I finished with a 42 after nine holes and I was pleased.

The tenth hole is the last along the coast until the 17th and 18th. I managed to par the tenth and the eleventh, but double bogeyed the 12th.hole. My first shot was slightly to the right of the green and Michael told me to use a lob wedge rather than a small bump and run and I ended up hitting a tree branch since my wedge got up so quickly. Michael apologized saying he did not think I could get my wedge so high so quick, but Michael saved me far more strokes than he cost me, so I could live with one piece of bad advice.

Michael told us that Ben Hogan called the 13th “the longest shortest par 4” and that we were playing the US Open tees. The hole is uphill into a vicious wind. Ben knew what he was talking about as I took another double bogey hitting into the hurricane.

I then took my third double bogey in a row on the 14th hole. It’s a 530 yard par 5, the number one handicap hole, and another hole that had me hitting into the wind.

Yes, that is me

I settled down with a couple bogeys and then parred out on the 17th and 18th. The 18th was a great looking hole down the coast line.

I ended up shooting 86, achieving my goal of shooting less than 90 and exceeding my birdie goal by achieving the back to back birdies on the 2nd and 3rd holes.

All in all it was an awesome day and a great experience, which, to me, was worth the cost and a worthy bucket list item.

The next day we played Spanish Bay. In talking to the starter, we were told that the best pro score ever at Spanish Bay was supposedly 68 and that it is considered a far tougher course than Pebble. We were paired with a husband and wife team for this round and quickly realized the wife had no idea how to play golf and should never have been playing on a course of this calibre. When we complained at the conclusion of the round we were told this is the number one complaint at the Pebble Beach courses; however, since they are public courses they cannot do anything about it. Personally, I am not sure why they cannot implement a minimum handicap requirement, but I digress.

I will not go into detail about Spanish Bay other than to say it lived up to the starter’s billing. The fairways were tight, the greens extremely tough to read and, most importantly, the wind at Spanish Bay made the wind at Pebble seem like a breeze.

1st hole at Spanish Bay

I shot 96 at Spanish Bay and actually hit the ball very well most of the round. I only parred the tenth and twelfth holes. I think my experience at the 17th hole par 4 best exemplifies Spanish Bay. I was 150 yards out after my drive on this hole and would usually use a 9 iron. Due to the wind I hit a six iron. I hit the ball as well as I could hit it and it still just made it to the fringe. The wind was a 4 club wind; I should have used a 5 iron instead of a 9 iron. I don’t know how you adjust to such a wind.

Anyways, despite the poor playing partner and my poor score, I really enjoyed playing Spanish Bay.

In the end, it was a golf trip to remember. My next bucket list items are more vacation oriented, but somewhere down the line, I intend to cross my second golf course off my bucket list, that being St. Andrews in Scotland.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

One item to shortly be crossed off my bucket list- Pebble Beach

The excessive heat in Toronto has dried out my brain, so today I will take a lighter approach to my blog, with no complicated income tax or business issues.

In my November 25, 2010 blog, titled, Sign that will, I discussed the importance of not only updating your will, but ensuring any changes to your will are finalized and signed. I followed the will discussion with a mini-blog about creating a bucket list. As my father died young, I am very cognizant about ensuring I do the things I want to do in life, before it is too late.

I noted in the above blog that amongst the items on my bucket list is to play golf at Pebble Beach in California and St. Andrews in Scotland, two of the most noted golf courses in the world. I have just booked Pebble Beach for an early fall game with my golf buddies. I am really looking forward to the challenge of playing Pebble Beach and the surrounding scenery. I will also be playing The Links at Spanish Bay, not a bad little course on its own.

I really feel strongly that everyone should create their own bucket list and try to achieve and undertake as many items as possible on their list.

Fore!!!!!!!!!!!!!!

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.