2 July 1998 Internal T.I. 9815897 - TAXATION OF PRIZES

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: Taxation of winnings in a manufacturer contest.

Position: Taxable under paragraph 6(1)(a).

Reasons: Winnings have been received by "in respect of" an office or employment and are therefore taxable under 6(1)(a).

							July 2, 1998

	Business Window				HEADQUARTERS
	Toronto North Tax Services Office	Karen Power, CA
(613) 957-8953
	Attention: Ron Maislin
							7-981589

Taxability of Winnings in a XXXXXXXXXX Contest

We are writing in reply to your correspondence of June 16, 1998, concerning the taxation of winnings from a proposed XXXXXXXXXX contest.

Our understanding of the facts is as follows:

1. Employees of resellers/dealers of XXXXXXXXXX products can enter a contest to win fairly significant prizes (e.g. cars, vacations, etc.).

2. These employees deal directly with the XXXXXXXXXX contest promoter; they do not deal through their employers.

3. The employees get ballots for selling certain XXXXXXXXXX products, the more of the eligible product they sell, the more ballots they will have.

4. At the end of the contest, the winners are drawn at random from the ballots.

Our comments

Paragraph 6(1)(a) of the Act states, in part, that “There shall be included in computing the income of a taxpayer for a taxation year as income from an office or employment such of the following amounts as are applicable:

(a) Value of benefits - the value of board, lodging and other benefits of any kind whatever received or enjoyed by the taxpayer in the year in respect of, in the course of, or by virtue of an office or employment, ...”

Despite the element of chance involved in the awarding of the above-note prizes, the fact remains that the sales program is restricted to employees of XXXXXXXXXX retailers and dealers and any prize received would be “in respect of...or by virtue of...” their office or employment.

In our view, the prizes would not be considered to be a prize or lottery scheme as described in paragraphs 1 to 3 in Interpretation Bulletin IT-213R “Prizes from lottery schemes, pool system betting and giveaway contests.

In our view, non-cash prizes received by the respective employees in the situation described above, would be taxable in their hands under paragraph 6(1)(a) of the Income Tax Act (the “Act”).

In the above situation, as noted on page 15 of the Employers’ Guide to Payroll Deductions - Taxable Benefits, XXXXXXXXXX must report prizes given directly to the employees of a dealer or retailer. The value of the award or prize should be reported as a benefit in box 28, “Other Income,” on a T4A Supplementary slip.

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