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 the prizes awarded in an essay contest to Ontario and Quebec high schools students and schools are prescribed prizes within the meaning of Regulation 7700.
Position: No
Reasons: The prizes do not appear to meet the "recognized by the general public" criteria. Furthermore, the prizes are identified in the contest rules as "scholarships" and would therefore be taxed as scholarships under paragraph 56(1)(n).
XXXXXXXXXX 2004-008461
Shaun Harkin, CMA
November 4, 2004
Dear XXXXXXXXXX:
Re: Technical Interpretation Request: Scholarships, Bursaries, Prizes
We are writing in reply to your email of July 14, 2004 wherein you ask whether the amounts awarded, in an essay contest for Ontario and Quebec high school students, would be considered prescribed prizes for the purpose of paragraph 56(1)(n) of the Income Tax Act (the "Act").
We acknowledge receipt of the additional information including the contest rules submitted to us by facsimile on October 19, 2004.
The information provided to us on October 19, 2004 indicates that the contest awards XXXXXXXXXX "scholarships" to the winners. Accordingly, it appears that the amounts paid to the winning students are considered to be scholarships by the payer. Scholarships are subject to tax under paragraph 56(1)(n) of the Act to the extent that the scholarship, together with any other scholarships, fellowships, bursaries, or prizes for achievement in a field of endeavour normally carried on by the recipient (other than prescribed prizes) received, exceeds the recipient's scholarship exemption for the year.
If the awards are, in fact, prizes awarded for achievement in a field of endeavour regularly carried on by the recipient, they would be taxed in the same manner as scholarships unless they were prescribed prizes. Based on the information provided, it is our view that the contest awards would not be considered prescribed prizes.
Section 7700 of the Income Tax Regulations defines prescribed prizes for purposes of subparagraph 56(1)(n)(i) of the Act. A prescribed prize is any prize which is recognized by the general public and which is awarded for meritorious achievement in the arts, 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. For example, a Nobel Prize given to a scientist or the Governor General's Literary Award given to a professional writer would qualify, as would many community service awards.
It is a question of fact whether a prize is considered recognized by the general public. In making such a determination, we consider, among other things, evidence suggesting a high level of public awareness of the prize and the extent to which the announcement or receipt of the prize is widely publicized by the media.
Based on the information submitted, it is our view that the contest awards would be included in the recipient's income as either scholarships or prizes for achievement in a field of endeavour regularly carried on by the recipient. The recipient would only include the portion of the amount, together with other scholarships or bursaries, that exceeds his or her scholarship exemption for the year. The scholarship exemption is either $500, or $3,000 in respect of scholarships or bursaries relating to a program that qualifies for the education tax credit.
Please note that tax does not have to be withheld at source from amounts that are included in the recipient's income under paragraph 56(1)(n) of the Act. However, under subsection 200(2) of the Income Tax Regulations every payer of a scholarship, fellowship, bursary or prize (other than a prescribed prize) must report the amount on a T4A information return.
For more information in this regard, please refer to Interpretation Bulletin
IT-75R4, Scholarships, Fellowships, Bursaries, Prizes, and Research Grants, which is available on our website at www.cra-arc.gc.ca.
We trust our comments will be of some assistance.
Yours truly,
Wayne Antle, CGA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
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