21 January 2005 External T.I. 2004-0098691E5 - Prizes Paid To Amateur Athletes

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 certain prizes paid to amateur athletes are taxable under paragraph 56(1)(n) of the Act?

Position: Question of fact. Such a determination can only be made with a complete knowledge of all the facts as they pertain to an individual taxpayer, but in this case it is likely.

Reasons: The wording of paragraph 56(1)(n) of the Act is sufficiently broad that it could encompass prizes awarded to amateur athletes under any of the circumstances described by the correspondent. The prizes are likely amounts received by the taxpayer for an achievement in a field of endeavour ordinarily carried on by the taxpayer and are not a prescribed prize.

XXXXXXXXXX 	2004-009869
									Randy Hewlett, B.Comm.
		613-941-7239
January 21, 2005

Dear XXXXXXXXXX:

Re: Prizes Paid To Amateur Athletes

We are writing in response to your letter of October 14, 2004, wherein you requested our opinion on whether certain prizes paid by XXXXXXXXXX to amateur athletes are taxable. XXXXXXXXXX is a registered amateur athletic association responsible for the sport of XXXXXXXXXX in Canada.

In your letter, you described three classes of cash prizes, as follows:

1. International Competition: paid to amateur athletes who win gold medals at the Olympic games and in Olympic events at the annual World Championships.

2. National Achievement Awards For Club-Level Athletes: paid to amateur athletes who are not on the national team XXXXXXXXXX.

3. XXXXXXXXXX.

In your view, payments for all three classes of prizes described above are non-taxable. The main basis for your view is that most amateur athletes have jobs or go to school as well as train for their sport, and therefore none of these prizes would be a "a prize for achievement in a field of endeavour ordinarily carried on by the taxpayer" as required under paragraph 56(1)(n) of the Income Tax Act (the "Act"). It is also your view that the prize paid for International Competition would be exempt from taxation under paragraph 56(1)(n) of the Act because it is a "prescribed prize" as defined in section 7700 of the Income Tax Regulations (the "Regulations"). In your view, amateur athletes who compete at the World Championships or Olympic games are recognized as performing a service to the public and therefore, any such prize would be regarded a "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".

Our Comments

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. However, we are prepared to offer the following comments.

Paragraph 56(1)(n) of the Act will include in a taxpayer's income the total of all amounts received in the year as or on account of a prize for achievement in a field of endeavour ordinarily carried on by the taxpayer, other than a prescribed prize. Section 7700 of the Regulations defines a prescribed prize for this purpose 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 but does not include any amount that can reasonably be regarded as having been received as compensation for services rendered or to be rendered".

The determination of whether a particular prize is considered "a prize for achievement in a field of endeavour ordinarily carried on by the taxpayer" is a question of fact. The general position of the Canada Revenue Agency with respect to the taxable status of prizes for purposes of paragraph 56(1)(n) of the Act and section 7700 of the Regulations is discussed in Interpretation Bulletin IT-75R4, Scholarships, Fellowships, Bursaries, Prizes, and Research Grants, dated June 18, 2003. As noted in paragraph 17 of IT-75R4, an amount generally qualifies as a prize for purposes of paragraph 56(1)(n) of the Act if it is paid in recognition of a genuine accomplishment in a challenging area, whether it be of an academic, vocational or technical nature. In our view, the wording of paragraph 56(1)(n) of the Act is sufficiently broad that it could encompass prizes awarded to amateur athletes under any of the circumstances described in your letter. A final determination, however, can only be made with a complete knowledge of all the facts as they pertain to an individual taxpayer.

In your letter, you raise the argument that because of the Supreme Court of Canada decision in The Queen v. Savage (1983 DTC 5409), a prize for athletic achievement is not a "prize for achievement in a field of endeavour ordinarily carried on by the taxpayer". In our view, the Court's reference to the exclusion under paragraph 56(1)(n) of the Act of "prizes won in games of chance or at a costume party or for athletic achievement" does not mean that all prizes in respect of these endeavours are excluded from taxation. In this regard, we are of the view that a prize awarded to a taxpayer who ordinarily carries on a field of endeavour that includes participating in games of chance, costume parties or a particular athletic sport, is taxable under paragraph 56(1)(n) of the Act.

We would also like to address your view that a prize awarded to an amateur athlete who wins a medal in XXXXXXXXXX at the World Championships or Olympic games is a prescribed prize. You feel that such a prize is "recognized by the general public" and is awarded for "service to the public". In determining whether a prize is recognized by the general public, we will consider, among other things, evidence suggesting a high level of public awareness of the prize and the extent to which the public announcement or receipt of the prize is widely publicized by the media. For a prize to be considered awarded in recognition of service to the public, the achievement that gave rise to the award must, in our view, result in a demonstrable service to the public. Notwithstanding the fact that winning a medal at the World Championships or Olympic games may be internationally recognized and could indirectly promote a sense of nationalism, we are of the view that any resulting prize that may be awarded is not awarded in recognition of a service to the public but directly in recognition of winning the medal.

We trust our comments will be of assistance to you.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch