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 various awards/scholarship meet the definition of a prescribed prize under Section 7700 of the Income Tax Regulations:
1) XXXXXXXXXX
XXXXXXXXXX
Position: 1) Likely;
XXXXXXXXX No; appears to be a scholarship
Reasons: Legislation and previous positions
XXXXXXXXXX 2017-071504
C. Brennan CPA, CA
January 29, 2018
Dear XXXXXXXXXX:
Re: Prescribed Prizes and Scholarships
We are writing in response to your email of July 18, 2017, concerning whether various awards/scholarship are prescribed prizes for purposes of paragraph 56(1)(n) of the Income Tax Act (the “Act”) or otherwise exempt from income under the Act.
Specifically, you have asked whether the following awards/scholarship given by the XXXXXXXXXX Government are exempt from income under the Act:
XXXXXXXXXX
It is our understanding that the purpose of each award is as follows:
XXXXXXXXXX
With the exception of the XXXXXXXXXX, the recipients of the awards are selected from among the nominations for each award by independent selection committees. The selection committee for the XXXXXXXXXX is responsible for nominating the candidates and selecting the award winner. The winners of the awards (except the XXXXXXXXXX) are announced to the public by news release and through the Government of XXXXXXXXXX website. The XXXXXXXXXX is announced to the public through the XXXXXXXXXX news conference and through XXXXXXXXXX websites.
The XXXXXXXXXX is granted each year to XXXXXXXXXX students enrolled in a full-time graduate level social work program at XXXXXXXXXX publicly funded university. An independent selection committee, appointed by the XXXXXXXXXX, reviews each application and recommends the scholarship candidates. Winners are announced to the public through the Government of XXXXXXXXXX’s website.
This technical interpretation provides general comments about the provisions of the Income Tax Act (the “Act”) and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R7, Advance Income Tax Rulings and Technical Interpretations.
Our Comments
Paragraph 56(1)(n) of the Act generally includes in income all amounts, in excess of a scholarship exemption, that are received in the year as a scholarship, fellowship, bursary, or prize for achievement in a field of endeavour ordinarily carried on by the taxpayer. However, the amount or value of any prize received by the taxpayer in the course of the taxpayer’s business or in the course of or by virtue of the taxpayer’s office or employment would not be a prize included in a taxpayer’s income under paragraph 56(1)(n) of the Act. Such a prize would be included in the taxpayer’s income under section 9 of the Act or section 5 of the Act, as the case may be.
In addition, paragraph 56(1)(n) specifically excludes a “prescribed prize.” Section 7700 of the Income Tax Regulations (the “Regulations”) defines a “prescribed prize” 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.”
It is a question of fact whether a prize or award is a prescribed prize. This generally requires a review of all relevant documentation and information, including the primary purpose for which the award was granted, the terms and conditions attached to the award, and the nature of the relationship between the recipient and the grantor. It is also a question of fact whether a prize can be regarded as compensation for services rendered or to be rendered. The XXXXXXXXXX Government, in conjunction with the recipient must make this determination. It appears that in most cases, the awards will not be presented to a recipient as compensation for services rendered or to be rendered.
Based on the information that was available to us, it is our view that the XXXXXXXXXX would likely qualify as prescribed prizes as defined in section 7700 of the Regulations. This means that these awards would not be included in the income of the recipients under paragraph 56(1)(n) of the Act.
The XXXXXXXXXX appears to be a scholarship and not a prescribed prize as it appears to be given to students to enable them to pursue their education. Our general views on the taxation of scholarships can be found in Income Tax Folio S1-F2-C3, Scholarships, Research Grants and Other Education Assistance.
Scholarships are included in a taxpayer’s income pursuant to paragraph 56(1)(n) of the Act to the extent that the amount exceeds the scholarship exemption provided under subsection 56(3) of the Act. Subsection 56(3) of the Act provides a scholarship exemption for scholarship, fellowship or bursary amounts received by a taxpayer in the year in connection with the taxpayer's enrolment in an educational program in respect of which the taxpayer is a qualifying student, in the year, the immediately preceding year or the following year.
Whether the award received by students from the XXXXXXXXXX would qualify for a scholarship exemption pursuant to subsection 56(3) of the Act would be a question of fact and based on the circumstances of each student.
The payer of a scholarship, fellowship, bursary or prize (other than a prescribed prize) must report the amount on a T4A Slip, Statement of Pension, Retirement, Annuity and Other Income, even though the recipient may be entitled to exclude all or a portion of the amount from income because of the scholarship exemption. It is the responsibility of the recipient to determine the amount of any exemption available under subsection 56(3).
We trust that these comments will be of assistance to you.
Yours truly,
Lita Krantz, CPA, CA
Manager - Tax Credits and Ministerial Issues
Business and Employment Division
Income Tax Rulings Directorate
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