17 November 2008 External T.I. 2008-0293781E5 - Taxable Benefits - Prizes received by employees

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:

1. Whether a gift received by an employee through a draw is included in income pursuant to paragraph 6(1)(a) of the Act where:

a) the prize is provided by the employer;
b) the prize is paid for and provided by a work committee that is not funded or controlled by the employer;

c) the prize is provided by a work committee, that is not funded or controlled by the employer, from donations from third parties that are unrelated to the employer (e.g., a gift certificate from a local store).

2. Would the answer to question 1 a), b) or c) change if the winner of the draw had to answer a skill testing question?

Position:

1. a) Yes, taxable to the employee under paragraph 6(1)(a) of the Act;
1. b) & c) Non-taxable to the employee;

2. No.

Reasons:

This is in line with the CRA Guidelines regarding the income tax implications for employees in receipt of gifts and awards given through prize draws and social committees on our website at http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/bnfts/gfts/wrds/twfq-eng.html.

									2008 - 029378
XXXXXXXXXX 								Renee Sigouin
(613) 957-2128
November 17, 2008

Dear XXXXXXXXXX :

Re: Taxation of prize to employee

We are writing in response to your email of September 16, 2008 wherein you requested our comments regarding the income tax implications arising for employees receiving a prize from the XXXXXXXXXX (the "Committee") at XXXXXXXXXX (the "Employer").

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, 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. Although we cannot comment on your specific situation, we are prepared to provide the following comments in respect of the issues that you raised. Please note, however, that these comments are of a general nature only and are not binding on the CRA.

We understand that the employees may donate to charity through payroll deductions. In order to encourage employees to increase their donations, the Committee is contemplating establishing a draw in which employees who increase their donations would be entered. You have advised that the draw would only be open to employees. You have also advised that the Committee is not funded or controlled by the Employer.

Generally, under paragraph 6(1)(a) of the Income Tax Act ("the Act") a taxpayer is required to include in income from an office or employment the value of benefits of any kind whatever received or enjoyed in the year in respect of, in the course of, or by virtue of, an office or employment. This would include any non-cash benefits received by an employee in a taxation year.

Whether a benefit received in the year is in respect of, in the course of, or by virtue of, an office or employment is a question of fact. We have outlined our administrative position with respect to the income tax implications for employees in receipt of gifts and awards given through prize draws and social committees on our website at: http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/bnfts/gfts/wrds/twfq-eng.html

These guidelines state that:

a) An item given to one employee by an employer via a prize draw - if the draw is only open to employees of the company, then any item won is a benefit of employment and is therefore taxable, as it was gained by virtue of his or her employment;

b) An item paid for by the employer and given via a draw to an employee of a high-performing team - the prize takes on the nature of performance pay, or a thanks for a job well done, and as such, is a taxable benefit to the employee.

c) An item paid for by a social committee and given via a draw - our policy applies specifically to employer/employee relationships, and a social committee may be outside that. If the social committee is not funded and controlled by the employer, a prize won via lottery from the social committee is considered to be a windfall. If the employer does fund or exercise control over the social committee, the prize may be taxable.

It is our view that, where the prize awarded by the Committee is provided by the Employer, the employee will have received a taxable benefit from employment. Where the prize is paid for by the Committee, or acquired by the Committee from a third party unrelated to the Employer (such as a gift certificate donated by a local store), the employee in receipt of the prize will not be considered to have received a taxable benefit from employment. These taxation implications will not differ where the employee is required to answer a skill testing question upon winning the draw.

We trust these comments will be of assistance.

Yours truly,

Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch