Principal Issues: Whether a particular award is a prescribed prize pursuant to section 7700 of the Income Tax Regulations.
Position: While a question of fact, based on our understanding of the facts, no.
Reasons: The award does not appear to be a prize described in paragraph 56(1)(n) or section 7700 of the Income Tax Regulations.
XXXXXXXXXX 2009-031305
Michael Cooke, CA
June 19, 2009
Dear XXXXXXXXXX :
Re: Meaning of "Prescribed Prize"
We are writing in response to your request of March 9, 2009 wherein you asked whether certain awards given by a charitable foundation would be a "prescribed prize" for the purposes of subparagraph 56(1)(n)(i) of the Income Tax Act (the "Act") and section 7700 of the Income Tax Regulations (the "Regulations").
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 a request for an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, "Advanced Income Tax Rulings", dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the internet at http://www.cra-arc.gc.ca. Where the particular transactions are complete, such as in your situation, the inquiry should be addressed to the relevant tax services office, a list of which is available on the "Contact Us" page of the CRA website.
Notwithstanding the above, we are prepared to provide the following comments.
Paragraph 56(1)(n) of the Act will require the inclusion in a taxpayer's income of a prize for achievement in a field of endeavour ordinarily carried on by the taxpayer in the year, other than a prescribed prize, unless the particular prize is received in the course of business, or in respect of, in the course of or by virtue of an office or employment by the taxpayer.
A prescribed prize is defined in section 7700 of the Regulations and is generally described 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. A prescribed prize will, however, not include any amount that can reasonably be regarded as having been received as compensation for services rendered or to be rendered.
The Supreme Court of Canada considered the issue of the taxation of prizes and employment income in Savage v. The Queen, 1983 DTC 5409 and citing from its earlier position in Nowegijick v. The Queen, 1983 DTC 5041 (SCC) noted the following:
"The words "in respect of" are, in my opinion, words of the widest possible scope. They import such meanings as "in relation to", "with reference to" or "in connection with". The phrase "in respect of" is probably the widest of any expression intended to convey some connection between two related subject matters."
While the Supreme Court in Savage concluded that where an amount could be classified as both income from employment and a prize, paragraph 56(1)(n) of the Act, being the more specific provision, would prevail. However, paragraph 56(1)(n) of the Act was amended for amounts received after May 23, 1985, with the result that where a prize is also received in the course of a business or an employment the prize will be excluded from paragraph 56(1)(n) of the Act. In such circumstances the prize will be included in the recipient's income under section 9 of the Act, where the recipient is self-employed, or under section 5 or paragraph 6(1)(a) of the Act, where the recipient is an officer or employee.
Based on our review of the facts in this particular situation, each award appears to be sufficiently connected to the services performed by the recipient, either in the course of a business or an office or employment, such that none of these awards would be a prize or prescribed prize for the purposes of paragraph 56(1)(n) of the Act and section 7700 of the Regulations.
While we regret that our views could not be more favourable we trust that our comments will be of assistance.
Yours truly,
Phil Jolie
Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
