19 April 2010 External T.I. 2010-0355711E5 - Taxability of award

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: Are the winnings from the XXXXXXXXXX held in the United States taxable here in Canada?

Position: Yes.

Reasons: On the basis of the information provided, the prize is received by virtue of the Taxpayer's business therefore should be included pursuant to subsection 9(1) of the ITA.

2010-035571
W. Doiron
April 19, 2010

XXXXXXXXXX

Dear XXXXXXXXXX :

Re: Taxability of award

This letter is in response to your email dated January 27, 2010. In your email, you inquired whether monies received ("Prize") from winning the XXXXXXXXXX would be taxable in Canada in respect of your XXXXXXXXXX business.

XXXXXXXXXX

The particular situation outlined in your email appears to relate to a factual one, involving a specific taxpayer. Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. We are, however, prepared to offer the following general comments, which may be of assistance.

All statutory references in this letter are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended (the "Act").

Our Comments

Generally under the Act, a resident of Canada is subject to tax on their worldwide income subject to the provisions of a treaty, if it exists, between Canada and the source country. We do not have enough information to determine whether the provisions of the Canada - U.S. Tax Convention ("Convention") may apply. For purposes of our response we are assuming that a provision under the Convention would not cause the Prize to be taxable in the U.S..

For purposes of the Act, the treatment of the Prize received in respect of the XXXXXXXXXX would be a question of fact depending upon the circumstances relevant with regard to a particular recipient. Based upon the nature of this program, it would seem likely that the majority of participants in the XXXXXXXXXX would be XXXXXXXXXX in the course of their business operations. If the Prize is received in the course of business, it would be included in income pursuant to subsection 9(1) while reasonable expenses incurred by a participant entering the program in the course of its business would be deductible by such a participant.

However, where the Prize is not received in the course of business or is not considered to be income from employment, the Prize may, to the extent it exceeds $500, be included in income pursuant to the provisions of paragraph 56(1)(n) if it represents a prize for achievement in a field of endeavour ordinarily carried on by the recipient. Paragraph 56(1)(n) does not provide for the deduction of any expenses against an amount included in income under this provision

We refer you to Interpretation Bulletin IT-213R, Prizes from lottery schemes, pool system betting and giveaway contests and Interpretation Bulletin IT-75R4, Scholarships, Fellowships, Bursaries, Prizes, Research Grants and Financial Assistance for further information.

We trust these comments will be of some assistance.

Yours truly,

Lita Krantz
Assistant Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch