23 December 1997 Ruling 9725873 - 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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

whether recipient to be taxed upon receiving XXXXXXXXXX

Position:

refuse to rule as is ongoing award program (annual award since XXXXXXXXXX). Opinion substituted which says award is taxable under 56(1)(n) and not exempted by Regulation 7700

Reasons:

only employees of XXXXXXXXXX eligible for the award (Regulation 7700 not meant to carve out of 56(1)(n) amounts "awarded by an employer to an employee")

972587
XXXXXXXXXX Sandra Short

Attention: XXXXXXXXXX

December 23, 1997

Dear Sir:

Re: Advance Income Tax Ruling Request -XXXXXXXXXX

This is in reply to your September 24, 1997, request for an advance income tax ruling on behalf of your client, XXXXXXXXXX. We acknowledge receipt of your October 28, 1997, reply to our request for additional information.

Advance income tax rulings are provided on proposed transactions only. It is our view that XXXXXXXXXX is part of an ongoing award program at XXXXXXXXXX. While the recipient of the award changes from year to year, the transaction upon which we have been asked to rule is an ongoing one. Accordingly, the nature of your request falls outside the scope of an advance income tax ruling, as discussed in paragraph 7 of Information Circular 70-6R3. Your deposit will be returned to you under separate cover. We can, however, provide the following general comments.

Subparagraph 56(1)(n)(i) of the Act was amended by 1987, c. 45, s. 15(2) to add "other than a prescribed prize." The Department of Finance's Budget Supplementary Information provided the following:

The budget proposes a clarifying change for the 1983 and subsequent taxation years to the rules affecting the taxability of prizes for achievement. Amounts received by a taxpayer in a year, as or on account of a prize for achievement in a field of endeavour ordinarily carried on by the taxpayer, are technically required to be included in the taxpayer's income for the year. As a result of judicial decisions, the word "prize" has been interpreted more broadly than is appropriate. The budget therefore proposed to provide for regulation to prescribe the kind of prizes that will be excluded from a taxpayer's income. Such prizes would be limited to widely recognized prizes for meritorious endeavour. Scholarships, fellowships and prizes such as those awarded by an employer to an employee, or by a business to its customers or suppliers, will continue to be subject to tax.

We believe that the phrase in Regulation 7700 which provides that prescribed prizes do not include "any amount that can reasonably be regarded as having been received as compensation for services rendered or to be rendered" reflects the intent of the legislation to carve from the ambit of prescribed prizes any prize which is awarded by an employer to only its own employees. We believe that the ordinary meaning of the phrase's words also support a finding that it is reasonable to conclude that a prize can reasonably be regarded as having been received as compensation for services when the only recipients of the prize are the employer's own employees.

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

Yours truly,

Roberta Albert, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch