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: The income tax treatment of an amount received from the Crown as an award for an invention by an employee of the Government of Canada.
Position: Question of fact.
Reasons: Pursuant to section 3 of the Public Servants Inventions Act, "the following inventions, and all rights with respect thereto in Canada or elsewhere, are vested in Her Majesty in right of Canada, namely, (a) an invention made by a public servant while acting within the scope of his duties or employment, or made by a public servant with facilities, equipment or financial aid provided by or on behalf of Her Majesty; and (b) an invention made by a public servant that resulted from or is connected with his duties or employment." The amount of an award for such an invention paid to an employee of the Crown is taxable as employment income pursuant to subsection 5(1) of the Act.
XXXXXXXXXX 2004-006933 Kathryn McCarthy, CA
June 24, 2004
Dear XXXXXXXXXX,
Re: Awards for Inventions by Federal Employees
We are writing in response to your letter of March 31, 2004, concerning the above-noted issue.
Your letter indicated that you are an employee of the Government of Canada (the "Crown"), who received an amount from the Crown as an award for an invention. You inquired as to the treatment of the amount under the Income Tax Act (the Act).
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 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 provide the following general comments.
Generally, when an employee receives an amount as an award from an employer for an invention, it is either a capital or an income receipt for income tax purposes. This determination generally depends on the ownership of the invention and the nature of the amounts received. For example, the receipt may be capital in nature if it relates to a payment by the employer for the acquisition of a capital property from the employee, such as a patent or copyright. Where the rights to the invention vest with the employer, the receipt is taxable as employment income pursuant to subsection 5(1) of the Act.
The income tax treatment of amounts received by employees as awards for inventions is always a question of fact, which can only be determined after a careful examination of the particular situation. However, pursuant to section 3 of the Public Servants Inventions
Act:
The following inventions, and all rights with respect thereto in Canada or elsewhere, are vested in Her Majesty in right of Canada, namely,
(a) an invention made by a public servant while acting within the scope of his duties or employment, or made by a public servant with facilities, equipment or financial aid provided by or on behalf of Her Majesty; and
(b) an invention made by a public servant that resulted from or is connected with his duties or employment.
On this basis, we are of the view that the amount of an award for such an invention paid to an employee of the Crown is taxable as employment income pursuant to subsection 5(1) of the Act.
We trust our comments will be of assistance to you.
Yours truly,
Randy Hewlett, B. Comm.
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch
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