Turcotte v. R., [1998] 3 CTC 2359

Lamarre Proulx T.C.J.:

The appellant is appealing under the informal procedure from the reassessment by the Minister of National Revenue (the “Minister”) for the 1993 taxation year.

The issue is whether a sum of money, received for participating in a televised game show, was received as a prize for achievement in a field of endeavour ordinarily carried on by the appellant within the meaning of s. 56(1)(n) of the Income Tax Act (the “Act’).

The appellant was initially assessed on the basis of a contract of service, as was explained to him in a letter dated December 27, 1995 from the Revenue Canada customer service section. That letter was filed by the appellant at the hearing as Exhibit A-3. I quote the relevant passage:

[I]f a contract exists, such as may be the case where a professional actor, an entertainer or some other person appears on a television show as a celebrity and receives a giveaway prize or wins a prize by skill or chance for appearing or participating in a contest on the show, the prize will be subject to tax as business or employment income.

This explanation follows the wording of paragraph 11 of Interpretation Bulletin IT-213R, titled “Prizes from Lottery Schemes, Pool System Betting and Giveaway Contests”. In accordance with that interpretation, the full amount received for participating in the game show, namely $19,200, had been included in computing the appellant’s income. Subsequently, at the objection stage, the appellant was assessed pursuant to s. 56(1)(n) of the Act and a $500 deduction was allowed as provided by that paragraph.

Paragraph 56(1 )(n) of the Act reads as follows:

Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year,

(n) Scholarships, bursaries, etc. — the amount, if any, by which

(i) the total of all amounts (other than amounts described in paragraph (g), amounts received in the course of business, and amounts received in respect of, in the course of or by virtue of an office or employment) received by the taxpayer in the year, each of which is an amount received by the taxpayer as or on account of a scholarship, fellowship or bursary, or a prize for achievement in a field of endeavour ordinarily carried on by the taxpayer, other than a prescribed prize,

exceeds the greater of $500 and the total of all amounts each of which is the lesser of

(ii) the amount included under subparagraph (i) for the year in respect of a scholarship, fellowship, bursary or prize that is to be used by the taxpayer in the production of a literary, dramatic, musical or artistic work, and

(iii) the total of all amounts each of which is an expense incurred by the taxpayer in the year for the purpose of fulfilling the conditions under which the amount described in subparagraph (ii) was received, other than

(A) personal or living expenses of the taxpayer (except expenses in respect of travel, meals and lodging incurred by the taxpayer in the course of fulfilling those conditions and while absent from the taxpayer’s usual place of residence for the period to which the scholarship, fellowship, bursary or prize, as the case may be, relates),

(B) expenses for which the taxpayer was reimbursed, and

(C) expenses that are otherwise deductible in computing the taxpayer’s income;

Section 7700 of the Income Tax Regulations (the “Regulations”) reads as follows:

For the purposes of subparagraph 56( 1 )(n)(i) of the Act, a prescribed prize is 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.

In making his reassessment, the Minister relied on the facts set out in Paragraph 5 of the Reply to the Notice of Appeal (the “Reply”), as follows:

[TRANSLATION]

(a) during the 1993 taxation year, the appellant took part in a game show on Société Radio-Canada titled “Tous pour un”;

(b) during the 1993 taxation year, the appellant received $19,200 from Société Radio-Canada;

(c) that amount was paid as a prize for an authentic work in a field presenting challenges;

(d) for the 1993 taxation year, Société Radio-Canada issued the appellant a T4A indicating income of $19,200 as a prize for taking part in a game show;

(e) for the 1993 taxation year, the Minister taxed the sum of $19,200 as “Other Income” and allowed an exemption of $500 applicable in reduction of income received from a prize amounting to $19,200 pursuant to s. 56( 1 )(n) of the Income Tax Act (hereinafter the “Ac/”).

The appellant admitted subparagraphs 5(a), (b), part one of (d) and subparagraph (e) of the Reply. It may be noted forthwith that, in the second part of paragraph 5(c) of the Reply, no mention is made of the appellant’s ordinary field of endeavour.

In his testimony, the appellant related the following facts. He concluded his studies after the eleventh grade. In 1970, he began working as a warehouseman for a pharmaceutical company and ended up as a pharmaceutical representative. He subsequently became a salesman in a shoe store, where he ended up as manager of the store. From 1979 to 1986, he worked in a repertory cinema known as the “Ouimetscope”. He began as an usher, became a projectionist and finally was manager of the cinema. As such, he was part of the group which selected films.

In 1993, the year at issue, when he was 47 years old, the appellant had been unemployed since 1986 and a recipient of welfare. His principal activity was reading and writing, as it still is. The appellant had no television set and learned of the existence of the game show “Tous pour un” through a brochure which he found in the Montréal public library. He said he selected the subject of Quebec cinema because the books were already out on the other subject of the competition, namely President Kennedy, while those on Quebec cinema were still on the shelves. The appellant spent three months studying the subject, reading books and learning details by heart.

The appellant maintained that neither his work as a cinema manager nor his reading had made him a specialist on Quebec cinema. The appellant said he had not taken any courses on Quebec cinema, given any courses on the subject or published anything on it.

The appellant filed the “Tous pour un” competition entry form as Exhibit A-1. It states that: [TRANSLATION] “What is special about ‘Tous pour un’ is that it focuses on a competitor who has special knowledge of a given subject”. “Competitors are subject to a rigorous selection process in two stages: a written competition and an oral competition for final selection. The five participants who obtain the best written scores will be asked to take an oral test.”

Exhibit A-2 consists of three letters to the appellant from Société RadioCanada dated December 2, 1992, November 3, 1993 and August 24, 1994 respectively. These letters confirm his participation in the oral tests on each of the following themes: Quebec cinema, Charles de Gaulle and Charlie Chaplin. The appellant was not the candidate selected for the first two subjects but was in the five participants who obtained the best written scores. The appellant maintained he was not a specialist in any of these areas.

The appellant stated that it was not necessary to be a specialist in any of the fields discussed on the game show. Participants had to have a good memory and be lucky enough to have read the same book as that chosen by the researcher preparing the questions for the program and have remembered the details. In the appellant’s submission, the researcher had an average of three weeks to prepare the questions and he took them from the most complete book on the subject. The appellant was unable to obtain a copy of the questions put to him on Quebec cinema, but he did obtain the questionnaire on the subject of Charlie Chaplin (Exhibit A-4). He maintained that no specialist on Charlie Chaplin could have answered the questions as they related to details which were of no significance for the filmmaker’s work and professional life. The answers to the questionnaire were filed as Exhibit A-5. The appellant stated that all these answers were in the book Chaplin, sa vie, son art by David Robinson, Éditions Ramsay, Paris, 1987, 551 pages.

The method of payment of the prize is described in Exhibit A-1, as follows:

[TRANSLATION]

So, in each of the three weeks, the competitor will be asked questions requiring single or multiple answers. If he succeeds in getting through the first program, he will have a balance of $3,750. He will be able to choose to withdraw with this amount or risk it in the second program. If he succeeds in getting through the second stage, he will have the same choice to make but with double the amount, $7,500. Finally, if he successfully goes through the third program, he will receive a scholarship of $15,000 plus the bonuses he might have accumulated in the three weeks.

But what if he were unable to answer a question? All is not lost as, as in the original game, he will be able to appeal to the public. In an “Appel à tous” [public appeal], a specific question will be given to viewers who could save the competitor and earn $500. If the appeal is not answered, the competitor will be eliminated and replaced the next week by the competitor who came second in the selection process.

The appellant maintained that he took the risk of losing everything each week.

Exhibit A-6 is a letter from Robert David of Société Radio-Canada to Jean-Pierre Gouin of Revenue Canada, dated July 16, 1993. Mr. David enclosed a pamphlet explaining the procedure of the program “Tous pour un”. He indicates that the SRC always issued T4A tax forms to competition winners and asks whether such prizes were taxable.

Exhibit A-7 is the answer from Revenue Canada, Rulings Directorate, dated November 18, 1993. It states that prizes received are taxable under s. 56(1 )(n) of the Act. That letter, referring to paragraph 16 of Interpretation Bulletin IT-75R3, especially as regards s. 56(1 )(n) of the Act, says the following:

[TRANSLATION]

Paragraph 16 of Interpretation Bulletin IT-75R3, titled “Scholarships, Fellowships, Bursaries, Prizes, and Research Grants” of October 4, 1993, indicates the type of prize covered by s. 56(1 )(n) of the Act. The passage from that paragraph on which our opinion is based is as follows:

However, the type of prize contemplated in paragraph 56(1 )(n) 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 purpose of paragraph 56(1)(n) if it is paid in recognition of a genuine accomplishment in a challenging area, whether it be of an academic, vocational or technical nature.

The appellant maintained that the study of Quebec cinema is not a field of endeavour he ordinarily carries on, any more than the study of Charlie Chaplin’s life or that of General de Gaulle was. The appellant has never studied, taught or written on Quebec cinema. He also maintained that the risk taken by the recipient played a significant part in obtaining the prize and that it was not for achievement within the meaning of s. 56(1 )(n) of the Act.

Counsel for the respondent argued that Quebec cinema is the appellant’s ordinary field of endeavour because it is an aspect of the cultural field and that field is the appellant’s ordinary field of endeavour. She also argued that the prize was awarded to the appellant for achievement.

Analysis

Division B of the Act is titled “Computation of Income”. Subdivision d of that division, containing s. 56 of the Act, is titled “Other Sources of Income”. The introductory portion of s. 56(1) of the Act begins as follows: 56. (1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year ...

In his text The Fundamentals of Canadian Income Tax', [1] the writer Vern Krishna explains s. 56 of the Act as follows:

To this point, we have examined the rules governing the computation of income from the following specifically identified sources: office, employment, business, property and capital gains. We have seen that income from these sources enters into the computation of total income according to the sequence and manner set out in section 3. There are, however, certain types of income that cannot conveniently be identified as originating from, or relating to, these named sources. These are loosely categorized as “other sources of income” in subdivision d of Division B.

The rationale for the “other sources of income” is as varied as the types of income in this category. Pension benefits and retirement allowances are closely related to the earning of employment income, but may be received after the taxpayer’s employment has terminated. Other items (such as indirect payments, family allowances, etc.) just do not conveniently relate to any particular source of income. Thus, in a sense, “other sources of income” is nothing more than a residual category for receipts that have the characteristics of income but that cannot be conveniently linked with an office or employment, business or property, and that do not result from a disposition of capital property.

The explanation of that same section given in Les principes de l'imposition au Canada [2] is as follows:

[TRANSLATION]

Subdivisions d and e of Division B of the Act provide respectively for the inclusion and deduction of certain items in computing the taxpayer’s income. These two subdivisions bring together disparate items which cannot usually be related to any of the previously mentioned sources of income (office or employment, property, business).

The explanation given of s. 56(1 )(n) of the Act in those two texts is as follows:

(c) Prizes

Prizes for achievement are included in income in the year received. The word “prize” is broadly interpreted to include any award for accomplishment. To be included in income, however, the prize must be for achievement in a field of endeavour ordinarily carried on by the taxpayer. Thus, prizes won in games of chance or for athletic achievement are not taxable. Prescribed prizes of recognition by the general public for particularly meritorious endeavours are also excluded from income.^ [3]

[TRANSLATION]

3.2 Scholarships, fellowships or prizes

Under s. 56(1 )(n), the taxpayer must include in computing his or her income for the year any amount received as or on account of “a scholarship, fellowship or bursary or a prize for achievement in a field of endeavour ordinarily carried on by the taxpayer”. However, a $500 exemption applies to the total of money received in this way. As a result of the Supreme Court of Canada judgment in The Queen v. Savage, [4] in which it was held that a prize received from an employer which was employment income could benefit from the $500 exemption, the Act was amended to preclude the application of s. 56(1 )(n) to scholarships or prizes received in the course of a business or by virtue of an office or employment.^ [5]

Prizes may thus be included in a taxpayer’s income in one of three forms. Firstly, a prize received in connection with an office or employment is taxable in accordance with the provisions contained in ss. 5 to 8 of the Act, dealing specifically with income or loss from an office or employment. That is not the case here since the appellant was not an employee of Société Radio-Canada.

Secondly, a prize received by a taxpayer may be income from a service business as was the case in Campbell v. Minister of National Revenue^ [6] In that case, the appellant undertook to swim across Lake Ontario and give an exclusive interview to a Toronto newspaper, which undertook to pay him $5,000 for doing this. The Tax Appeal Board came to the conclusion that the prize was taxable as income from a business in which the appellant provided services as a professional swimmer.

“Business” is defined in s. 248(1) of the Act as follows:

“business” includes a profession, calling, trade, manufacture or undertaking of any kind whatever and, except for the purposes of paragraph 18(2)(c), section 54.2 and paragraph 110.6( 14)(/), an adventure or concern in the nature of trade but does not include an office or employment...

As we saw at the outset, the prize was initially included in the appellant’s income as business income. Although I probably do not have to rule on this point, I consider on the basis of the evidence that the Minister correctly concluded at the objection stage that the appellant was not carrying on a business and that the prize was not received in the course of a business.

Thirdly, a prize may be included in a taxpayer’s income if it is of the type described in s. 56(1 )(n) of the Act. For that paragraph to apply, the prize must have been received for achievement in a field of endeavour ordinarily carried on by the taxpayer. This is the provision the Minister relied on in making his reassessment.

What is meant by the words “prize for achievement in a field of endeavour ordinarily carried on by the taxpayer”? These words were considered in the Supreme Court of Canada judgment in R. v. Savage, [1983] 2 S.C.R. 428 (S.C.C.), and I quote, at 443:

The word “prize” is surrounded in the Income Tax Act by other words which give it colour and meaning and content. I repeat them: “as or on account of a scholarship, fellowship, or bursary, or a prize for achievement in a field of endeavour ordinarily carried on by the taxpayer”.

Second, the words “scholarship, fellowship or bursary”, with which the word “prize” is associated, are normally employed in speaking of educational attainments, usually in the sphere of advanced studies, and “polite” learning. Third, the prize must be for “achievement”, defined in the Shorter Oxford Dictionary (3rd ed.) as “the action of achieving, anything achieved, a feat, a victory”. “To achieve” is variously defined, including “to carry out successfully”, “to attain”. The “achievement” must be in a field of endeavour ordinarily carried on by the taxpayer. This rules out, for example, prizes won in games of chance or at a costume party or for athletic achievement. We are concerned with the field of endeavour ordinarily carried on by the taxpayer, in this instance, the life insurance business.

The Supreme Court of Canada indicated that the word “prize” must be construed in the same way as the words “scholarship” or “fellowship”. A scholarship or fellowship is usually given after reviewing the recipient’s file, deliberately and without any question of chance. In the same way, so far as a prize is concerned, the achievement should have been made and analysed before the decision is taken to award the prize as it is given for an achievement made in the ordinary field of endeavour. There must be a connection between the ordinary field of endeavour, the achievement and the awarding of the prize.

As regards the meaning to be given to the word “prize”, the exclusion of certain prizes won which the Supreme Court gave as examples in the above judgment indicate what a prize under s. 56(1 )(/i) of the Act is not. If it is a prize the awarding of which depends on chance or the skill of the moment, it is not a prize for achievement in a field of endeavour ordinarily carried on by the recipient.

The appellant sought to show that success in the game show in question depended largely on chance, the chance of finding the same book as that selected by the researcher preparing the questions and the chance of remembering the detail asked for, an unimportant detail on which no specialist in the area could have answered a question or wanted to confine himself or herself to learning or remembering. There was a risk or chance both in being selected and in winning. There was the risk of losing money won on one program by agreeing to participate in the next program. In the event that a participant gave the wrong answer, there was the risk or chance that he would not find someone in the public who could give the correct answer and prevent the participant from losing everything.

I think it can readily be concluded that this was a game of intellectual skill in which the prize was determined largely by chance.

As regards the meaning to be given to the words “field of endeavour ordinarily carried on”, the Supreme Court of Canada held in Savage, supra; that the recipient’s “[ordinary] field of endeavour” was that of her occupation, and did not give too much thought to the meaning that expression should be given. The ordinary field of endeavour was not at issue in that case. In the instant case, can the phrase “field of endeavour ordinarily carried on” be given the broad meaning suggested by counsel for the respondent, namely the field of culture? In my opinion, it is difficult to regard the vast field of culture as an individual’s ordinary field of endeavour within the meaning of the wording in s. 56(1 )(n) of the Act. That surely is not the usual meaning of the wording. For most people, the phrase “field of endeavour ordinarily carried on” means a defined, specific field of endeavour continuously engaged in by that person. As the questionnaire dealt with Quebec cinema, the appellant’s ordinary field of endeavour would have to have been Quebec cinema, or at least cinema in general. I consider that the appellant showed that he was not a specialist in Quebec cinema or in the cinema, and that neither cinema nor Quebec cinema was his ordinary field of endeavour.

In conclusion, the money received by the appellant was not money received as a prize for achievement in his ordinary field of endeavour within the meaning of s. 56(1 )(n) of the Act. The prize was awarded on the basis of chance and risk and the skill of the moment, not for a work made in the course of an activity continuously engaged in by the taxpayer. There was also no intention on the part of the person awarding the prize to recognize achievement in the recipient’s ordinary field of endeavour. As we saw earlier, such an intention is formed after analysing the work in the context of the recipient’s ordinarily field of endeavour.

The appeal is allowed without costs.

Appeal dismissed.