2018-0780601E5 Prescribed Prize - the XXXXXXXXXX

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether a particular prize (the XXXXXXXXXX) meets the definition of a prescribed prize under Section 7700 of the Income Tax Regulations.

Position: Likely yes.

Reasons: Legislation and previous positions.

Author: El-Kadi, Randa
Section: 56(1)(n); 56(3); Regulation 7700

XXXXXXXXXX                                                                                                                                                2018-078060
                                                                                                                                                                        R. El-Kadi
March 20, 2019

Dear XXXXXXXXXX:

Re: Prescribed Prizes and the XXXXXXXXXX

We are writing in response to your correspondence in which you asked whether the XXXXXXXXXX (the “Prize”) is a prescribed prize for purposes of paragraph 56(1)(n) of the Income Tax Act (the “Act”) and section 7700 of the Income Tax Regulations (the “Regulations”).

Based on the information that is available to us, the Prize is awarded to emerging artists who have been recognized by renowned XXXXXXXXXX organizations (such as the Canada Council for the Arts) to be among Canada’s most XXXXXXXXXX. A selection committee XXXXXXXXXX nominates candidates and assesses them XXXXXXXXXX. It is our understanding that the winner is announced on the website of XXXXXXXXXX, and his or her XXXXXXXXXX is promoted on a particular XXXXXXXXXX. It is also our understanding that the Prize consists of a cash amount, in addition to non-cash contributions valued at a set amount namely in the form of XXXXXXXXXX for the Prize winner.

In your correspondence, you referred to a multitude of websites where last year’s Prize winner was announced, thus suggesting the extent to which the announcement or receipt of the prize is widely publicized on the Internet. You also quoted paragraphs 3.56 and 3.57 of Income Tax Folio, S1-F2-C3, Scholarships, Research Grants and Other Education Assistance, regarding this subject. In your view, the Prize seems to meet the requirements in section 7700 of the Regulations for being a prescribed prize.

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 IC70-6R8, Advance Income Tax Rulings and Technical Interpretations.

Paragraph 56(1)(n) of the Act generally includes in income all amounts, in excess of a scholarship exemption, that are received in the year as a scholarship, fellowship, bursary, or prize for achievement in a field of endeavour ordinarily carried on by the taxpayer.  However, any amounts received by the taxpayer in the course of the taxpayer’s business or in respect of, or in the course of or by virtue of the taxpayer’s office or employment would not be a prize included in a taxpayer’s income under paragraph 56(1)(n) of the Act. Such amounts would be included in the taxpayer’s business or employment income, as the case may be.

In addition, paragraph 56(1)(n) specifically excludes a “prescribed prize.”  Section 7700 of the Regulations defines a “prescribed prize” as “any prize that is recognized by the general public and that is awarded for meritorious achievement in the arts, the sciences or service to the public but does not include any amount that can reasonably be regarded as having been received as compensation for services rendered or to be rendered.”

It is a question of fact whether a prize or award is a prescribed prize. This generally requires a review of all relevant documentation and information, including the primary purpose for which the award was granted, the terms and conditions attached to the award, and the nature of the relationship between the recipient and the grantor. It is also a question of fact whether a prize can be regarded as compensation for services rendered or to be rendered.

Based on the information you sent us, it appears that the Prize is awarded for meritorious achievement in the arts (a field of endeavour ordinarily carried on by the Prize recipient) and it does not appear to be for services rendered or to be rendered. Additionally, based on our review, it appears reasonable to conclude that the Prize is recognized by the general public. Therefore, in our view, the Prize is likely to qualify as a prescribed prize as defined in section 7700 of the Regulations and, as such, it would not be required to be included in income under paragraph 56(1)(n) of the Act.

We trust that these comments will be of assistance to you.

Yours truly,

 

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

All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without the prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5.

© Her Majesty the Queen in Right of Canada, 2019

Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistribuer de l'information, sous quelque forme ou par quelque moyen que ce soit, de façon électronique, mécanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.

© Sa Majesté la Reine du Chef du Canada, 2019


Video Tax News is a proud commercial publisher of Canada Revenue Agency's Technical Interpretations. To support you, our valued clients and your network of entrepreneurial, small businesses, we choose to offer this valuable resource to Canadian tax professionals free of charge.

For additional commentary on Technical Interpretations, court cases, government releases, and conference materials in a single practical document specifically geared toward owner-managed businesses see the Video Tax News Monthly Tax Update newsletter. This effective summary and flagging tool is the most efficient way to ensure that you, your firm, and your clients are fully supported and armed for whatever challenges are thrown your way. Packages start at $400/year.