21 January 2013 External T.I. 2012-0442171E5 - Door Prize received by an employee

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 a door prize gifted to an employee, spouse and /or a board member at an employer held social event is taxable?

Position: Question of fact, but likely yes in this case.

Reasons: Where an employee or a board member receives a gift card by virtue of employment, the gift is a benefit received and will be included in the income of the employee or officer. A taxable benefit will also be assessed to the employee in respect of the cost of a gift card for the employee's spouse.

XXXXXXXXXX
2012-044217
C. Underhill

January 21, 2013

Dear XXXXXXXXXX

Re: Door Prize Received at an Employer Held Social Event

We are writing in response to your email of March 29, 2012, wherein you requested our comments regarding the income tax implications arising for employees receiving a door prize at an employer held social event.

In the situation you described, employees, their spouses, and board members are entitled to receive a door prize for attending the annual Christmas party and/or summer picnic. The door prize may be a gift card. The door prize is not related to performance as every person in attendance will receive a door prize.

Written confirmation of the tax implications inherent in particular transactions are provided by this Directorate where the transactions are proposed and are the subject matter of an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, "Advance Income Tax Ruling", 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/formspubs/menu-e.html. Where a particular transaction has already been completed, a review of the relevant facts and circumstances surrounding the situation would be required. Such a review would normally be conducted by the applicable tax services office during the course of an income tax audit which, if undertaken, would be carried out after the particular taxpayer has prepared and filed its income tax return for the year. Notwithstanding the foregoing, we are prepared to provide the following comments that may be of assistance.

Our Comments

You have told us that you were previously advised that your scenario falls under the definition of a lottery as defined in paragraph 3 of Interpretation Bulletin IT-213R, Prizes from lottery schemes, pool system betting and giveaway contests. Paragraph 3 of IT-213R defines a lottery as a scheme for distributing prizes by lot or chance among persons who have purchased a ticket or a right to the chance. It is our view that the rules outlined in this bulletin are not applicable to your scenario as there is no element of chance involved in the awarding of the door prize because every individual in attendance will receive a prize.

Employees are generally taxable on the value of all benefits received or enjoyed by virtue of their employment under paragraph 6(1)(a) of the Income Tax Act (Act). This would include any gifts received by an employee in the year. Although the CRA has an administrative policy that exempts from taxation certain gifts and awards received by employees or officers; this policy does not apply to cash or near-cash gifts or awards. A gift card is considered to be a near-cash gift and it is the CRA's view that regardless of the value, a gift card that is received by virtue of an office or employment must be included in the employee's or officer's employment income. The CRA's policy on gifts, awards, and social events can be found at: www.cra.gc.ca/gifts

You have questioned whether the CRA's policy on employer-provided social events (e.g. Christmas party) would apply to exempt the door prize from taxation. The CRA will generally not assess a taxable benefit to an employee for attending an employer-provided social event where all of the employees are generally invited and the cost per person is no more than $100. The costs to the employer for the social event would typically be the cost of the food, entertainment, hall rental, and other similar costs that were incurred by the employer to hold the event. The value of gifts or awards that an employer gives to an employee at the event is not included in the event costs.

In summary, where an employee or a board member receives a gift card by virtue of his or her office or employment, the value of the gift card should be included in his or her employment income. The employee/officer will also have to include in his or her employment income the value of any gift card provided to the employee's spouse or guest who does not deal at arm's length with the employee/officer.

We trust these comments will be of assistance.

Yours truly,

Nerill Thomas-Wilkinson, CA
Manager
for Director
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch