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 certain prizes, namely XXXXXXXXXX, meet the definition of a prescribed prize under Section 7700 of the Income Tax Regulations.
Position: Likely yes.
Reasons: See response.
Author: Underhill, Cynthia
Section: ITA: 56(1)(n); 56(3); Regulation 7700
February 5, 2020
Re: Prescribed prizes
We are writing in response to your correspondence in which you asked whether certain prizes, namely XXXXXXXXXX (the “Prize”), are 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”).
It is our understanding that the XXXXXXXXXX, gives XXXXXXXXXX prizes annually to XXXXXXXXXX for winning the best Canadian XXXXXXXXXX in the XXXXXXXXXX. You are not sure if the prizes meet all of the criteria of a prescribed prize. However, for reporting purposes, the XXXXXXXXXX issued a T4A Statement of Pension, Retirement, Annuity and Other Income (T4A slip) to the recipients of the Prizes for the 2018 year.
Based on your website, the Prizes are awarded annually to the best XXXXXXXXXX in the XXXXXXXXXX that have received funding from the Awards to XXXXXXXXXX. The XXXXXXXXXX is the administrator of the XXXXXXXXXX, a competitive funding program designed to assist with the XXXXXXXXXX. The winning XXXXXXXXXX make an exceptional contribution to XXXXXXXXXX. XXXXXXXXXX are invited to nominate a selection of eligible XXXXXXXXXX in the XXXXXXXXXX. The XXXXXXXXXX accepts nominations for the Prizes. Nominated XXXXXXXXXX are forwarded to XXXXXXXXXX juries. The juries, each comprised of XXXXXXXXXX distinguished academics representing a range of disciplines within the XXXXXXXXXX, will select the finalists and winners.
The winners of the Prizes are announced on the XXXXXXXXXX website, in a media release, and honored at the XXXXXXXXXX. Based on XXXXXXXXXX website, which is available at XXXXXXXXXX, XXXXXXXXXX is organized by the XXXXXXXXXX and is hosted by a different Canadian university each year. XXXXXXXXXX is described as the “XXXXXXXXXX.”
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 70-6R9, 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” from the income of the recipient. 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 have provided, 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 the income of the recipient under paragraph 56(1)(n) of the Act. Accordingly, as the payer of the Prize you would not be required to report the amount on a T4A slip.
If a payer discovers an error after issuing the T4A slip, the payer should amend or cancel the T4A slip regardless of whether or not there has been a request by the recipient (the “payee”) to do so. For more information on amending or cancelling a T4A slip see Guide, RC4157, Deducting Income Tax on Pension and Other Income, and Filing the T4A Slip and Summary. You can find the Guide online by going to Canada.ca and typing “RC4157” into the search toolbar.
Every taxpayer is responsible for accurately reporting his or her income on their T1 Income Tax and Benefit Return (T1 Return) whether or not a T4A slip has been received or is correct. If the payee believes that a T4A slip is incorrect and the payer will not or has not amended the T4A slip, the payee should report to the Canada Revenue Agency (CRA) the amount that the payee thinks is correct. Although the T4A slip is not conclusive proof of a taxpayer’s income, the onus would be on the payee to show why the amount reported is incorrect. Accordingly, the payee should be prepared to provide to the CRA information and supporting documentation explaining why the T4A slip is incorrect.
Generally, an individual can only request a change to a T1 Return for a tax year ending in any of the 10 previous calendar years. For example, a request made in 2020 must relate to the 2010 or a later tax year to be considered. Therefore, if an individual wants to amend their 2010 T1 Return, they must make their request on or before December 31, 2020. An individual can make a request to the CRA by completing Form T1-ADJ, T1 Adjustment Request or through My Account.
We trust that these comments will be of assistance to you.
On behalf of:
Lita Krantz, CPA, CA
Manager, Tax Credits and Ministerial Issues
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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