2014-0539611E5 T4A slips for prizes and awards from contests

Principal Issues: Should T4A slips be issued in the scenarios presented?

Position: Depends-general comments provided

Reasons: Legislation and administrative policy

Author: Robertson, George
Section: 56(1)(n) and (u); Reg. 200(2)

XXXXXXXXXX

                                          2014-053961
                                          George A. Robertson, CPA, CMA

August 6, 2015

Dear XXXXXXXXXX:

Re:   Prizes and awards from contests

This is in response to your correspondence of June 4, 2014, asking whether amounts received by students from a post-secondary institution (the “College”) in various situations are taxable income under paragraph 56(1)(n) of the Income Tax Act (the “Act”) and whether a T4A, Statement of Pension, Retirement, Annuity and Other Income, must be issued by the College to the recipient. Generally, you have outlined situations in which students receive a prize award for entering a contest at the College that all students of the College are eligible to enter. The prize may be a gift certificate or a tangible gift. The value of the gift may be either over or under $500.

You also asked whether the tax treatment would change in the following situations: a small entry fee is charged; a project or essay is required; the contest is only open to students in a specific program or class; the value of the prize award is applied to the student’s tuition account; or the recipient is a community member or prospective student.  We assume that none of the recipients would receive the amounts in the course of business, or in the course of, or by virtue of, employment at the College.

Our Comments

This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R6, Advance Income Tax Rulings and Technical Interpretations.
The types of prizes that you have described are most likely bursaries or prizes for achievement (as described in paragraph 56(1)(n) of the Act) or gifts or windfalls. As explained in paragraph 3.53 of Income Tax Folio S1-F2-C3: Scholarships, Research Grants and Other Education Assistance (the “Folio”), subparagraph 56(1)(n)(i) of the Act includes in computing a taxpayer’s income in a year, the amount received as a prize for achievement in a field of endeavour ordinarily carried on by the taxpayer, other than a prescribed prize. A prescribed prize is described in paragraphs 3.56 and 3.57 of the Folio; none of the prizes you have described would be prescribed prizes.

A prize can be considered to be an award to a particular person selected from a group of potential recipients and given for something that is accomplished, attained or carried out successfully. However, the type of prize contemplated in subparagraph 56(1)(n)(i) of the Act is restricted. The criteria for awarding the prize must be such that a recipient is rewarded for success in an area in which the recipient regularly applies effort. Therefore, an amount generally qualifies as a prize for purposes of subparagraph 56(1)(n)(i) if it is paid in recognition of a genuine accomplishment in a challenging area, whether it be of an academic, vocational or technical nature. For example, a prize to the winner of a video contest for students studying digital communications would likely be considered a prize for achievement in a field of endeavour ordinarily carried on by the taxpayer for the purposes of subparagraph 56(1)(n)(i) of the Act.

Scholarships and bursaries are amounts paid or benefits given to students to enable them to pursue their education. If, for example, a post-secondary institution awards a prize to a prospective student for obtaining the highest score on a math exam and the award is a credit to the student’s tuition account if they attend that particular institution, the award would likely be a scholarship or bursary under subparagraph 56(1)(n)(i) of the Act. Therefore, generally, when the prize award relates to the type of program the student is in at the College or is applied to the student’s tuition account at the College, the prize award could be a prize for achievement or a bursary under subparagraph 56(1)(n)(i).

Where the prize, scholarship or bursary is included in income under paragraph 56(1)(n) of the Act, a scholarship exemption may be available under subsection 56(3) of the Act to exclude from income some or the entire amount of the prize or bursary. More information about scholarships, bursaries and the scholarship exemption can be found in the Folio.

Subsection 200(2) of the Income Tax Regulations requires that every payer of a research grant, scholarship, fellowship, bursary or prize (other than a prescribed prize) report the amount on a T4A. T4As are required even though the recipient may be entitled to exclude all or a portion of the amount from income because of the scholarship exemption. Under the Canada Revenue Agency’s administrative exception, a payer is only required to issue a T4A where the total paid to, or on behalf of, an individual exceeds $500 in the year.  The amount to be reported on the T4A includes the value of non-cash prizes such as gift certificates and tuition certificates.

Prizes of the nature that you have described that are not scholarships, bursaries or prizes for achievement within the meaning of paragraph 56(1)(n) of the Act are likely a windfall or gift and would not be included in income. Windfalls, gifts and other prizes are described in Income Tax Folio, S3-F9-C1: Lottery Winnings, Miscellaneous Receipts, and Income (and Losses) from Crime.  Gifts or windfalls are not taxed under the Act. For example, if a prize is awarded to a student on the basis of chance or skill of the moment and not in an area in which the student regularly applies effort, the amount would not be included under subparagraph 56(1)(n)(i) of the Act but would likely be a windfall or gift. Generally, if a prize to a student at the College is awarded on random basis, such as solely on entry, or a demonstration of a minor degree of skill or knowledge, the prize award could be viewed as a gift or windfall and the amount would not have to be reported on a T4A.

If a recipient is not a student at the College, the prize would likely be a prize for achievement or a windfall or gift. The outcomes would not change if the recipient is required to pay a small entry fee in order to participate.

We trust that these comments will be of assistance.

Yours truly,

Pamela Burnley, CPA, CA
Manager - Tax Credits and Ministerial Issues
Business and Employment Division
Income Tax Rulings Directorate

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