5 July 2013 External T.I. 2013-0478391E5 - Prescribed Prize - XXXXXXXXXX

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 cash prize awarded by the Foundation constitutes a "prescribed prize" for purposes of the Income Tax Act.
2. Whether the Foundation is required to withhold tax from any amount awarded as a cash prize to a recipient who is a non-resident of Canada.

Position: 1. Question of fact. In light of the information provided, yes.
2. Question of fact. In light of the information provided, no.

Reasons: 1. The legislation. 2. The legislation

XXXXXXXXXX
2013-047839
A. Mahendran

July 5, 2013

Dear XXXXXXXXXX:

Re: Prescribed Prize – Cash Prizes Awarded in the XXXXXXXXXX

We are writing in response to your correspondence dated February 13, 2013, and further to our telephone discussion (Mahendran/XXXXXXXXXX) dated May 21, 2013, wherein you requested our views as to whether the cash prizes awarded in the XXXXXXXXXX (the "Competition") are prescribed prizes within the meaning of section 7700 of the Income Tax Regulations (the "Regulations") and whether the XXXXXXXXXX (the "Foundation") is required to withhold any amount from the cash prize awarded to a recipient who is a non-resident of Canada. As discussed previously, we are unable to provide an advance income tax ruling as the request is in respect of a completed transaction. However, we are prepared to provide the following general comments, which may be of assistance.

Based on the information provided, the Foundation established the Competition in XXXXXXXXXX, the purpose of which was to XXXXXXXXXX. The Competition was originally established as a XXXXXXXXXX. The XXXXXXXXXX and most recent Competition took place in XXXXXXXXXX from XXXXXXXXXX. The Competition was open to XXXXXXXXXX.

The Competition was announced internationally via worldwide websites and webcasts over the internet, social media, radio, newspaper, magazines, etc. The Competition consisted of four stages, including quarterfinals (XXXXXXXXXX), semifinals (XXXXXXXXXX), and finals (XXXXXXXXXX). Progression through each stage of the Competition is based on XXXXXXXXXX achievement as determined by an internationally diverse selection panel. The final phase of the Competition, XXXXXXXXXX was recognized by the XXXXXXXXXX community and the general public in Canada and abroad.

With respect to your first question as to whether a cash prize awarded by the Foundation constitutes a prescribed prize, section 7700 of the Regulations defines a prescribed prize for the purpose of subparagraph 56(1)(n)(i) of the Income Tax Act (the "Act") 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.

Determining whether a prize is recognized by the general public requires an element of evaluation or appreciation. In making such a determination, the Canada Revenue Agency considers evidence that suggests a high level of public awareness of the prize which could include the extent to which any public announcement or receipt of the prize is widely publicized by the media and whether the prize was available to a broad base of applicants. Based on our review of the information provided, it appears that the cash prizes awarded in the Competition meet the general requirements of a prescribed prize under section 7700 of the Regulations.

It is a question of fact whether a prize can be regarded as compensation for services rendered or to be rendered. The Foundation in conjunction with the recipient must make this determination. It appears that, generally, the cash prize award will not be presented to a winner of the Competition as compensation for services rendered or to be rendered.

With respect to your second question as to whether the Foundation is required to withhold any amount from the cash prize awarded to a non-resident recipient, paragraph 153(1)(g) of the Act and subsection 105(1) of the Regulations set out the rules to determine a withholding obligation on a person who pays certain amounts to another person. Paragraph 153(1)(g) of the Act states that every person paying at any time in a taxation year fees, commissions or other amounts for services, other than amounts described in subsection 115(2.3) or 212(5.1), shall deduct or withhold from the payment the amount determined in accordance with prescribed rules and shall, at the prescribed time, remit that amount to the Receiver General on account of the payee's tax for the year under this Part or Part XI.3, as the case may be.

The prescribed rules applicable for a payment to a non-resident person are set out in subsection 105(1) of the Regulations and require the payer to withhold 15 per cent of the fees, commissions or other amounts paid to a non-resident person in respect of services rendered in Canada. To determine whether or not an amount paid in a competition is in respect of "services" rendered in Canada, the meaning of "services" should be established. Since the Act does not define the term "services" for the purposes of the Act, the ordinary or common meaning of the term prevails. Based on our review of the ordinary meaning of "services", the cash prize received by the non-resident recipient is not a fee earned by him for services rendered in Canada but an award won by him for his achievement over and beyond the rest of the competitors.

Based on the above analysis, it is our view that paragraph 153(1)(g) of the Act and subsection 105(1) of the Regulations will not require the Foundation to withhold any amount from the cash prize awarded to a non-resident recipient. However, we would like to indicate that the foregoing comments are applicable only to the situation described above. Whether or not withholding is required for other amounts paid by the Foundation to a non-resident person is a separate issue and not addressed in this interpretation.

As indicated in paragraph 22 of Information Circular 70-6R5, the above comments do not constitute an income tax ruling and accordingly are not binding on the Canada Revenue Agency.

We trust that our comments will be of assistance to you.

Yours truly,

Sharmini Ratnasingham
for Director
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch