23 September 1999 Internal T.I. 9917577 - PRESCRIBED 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: Whether prizes received for scholastic achievement at the convocation of a university considered a prescribed prize as described in section 7700 of the Regulations and thereby excluded from income under paragraph 56(1)(n) of the Act.

Position: Based on limited information provided the prizes would be taxable under paragraph 56(1)(n) of the Act

Reasons: Not considered a prescribed prize as described in Regulation 7700 of the Act.

                                                September 23, 1999

      Regina TSO                                HEADQUARTERS
      Client Services                           Wm. P. Guglich
(613) 957-2102
      Attention: Lorette Shaw
                                                991757

Prizes and Awards

In your June 16, 1999, memorandum you requested our views as to whether various prizes and awards, totaling almost $XXXXXXXXXX awarded to XXXXXXXXXX (the "taxpayer") at the 1999 spring convocation of the XXXXXXXXXX, would be considered prescribed prizes as described in section 7700 of the Income Tax Regulations and thereby excluded from income under paragraph 56(1)(n) of the Income Tax Act (the "Act"). You referred to document E9300075 as being somewhat similar. We presume these prizes and awards were for scholastic achievement.

Our Comments

Paragraph 56(1)(n) of the Act generally includes in income all but the first $500 of the total of amounts received in the year as or on account of a scholarship, fellowship, bursary, or prize for achievement in a field of endeavour ordinarily carried on by a taxpayer. Such amounts are included in income in the year received. For each taxation year, only one $500 exemption is available to be applied against all income included under paragraph 56(1)(n) of the Act.

Grants received in a taxation year to enable a taxpayer to carry on research or similar work are included in income under paragraph 56(1)(o) of the Act. However, a taxpayer is only required to include in income that part of such grants that exceeds the total of any allowable expenses incurred by the taxpayer in the year for the purpose of carrying on the work. There is no $500 exemption for research grants received.

An individual is required to include in his or her income the amount of a prize (other than a prescribed prize) for achievement in a field of endeavour ordinarily carried on by the taxpayer. A prize can be considered to be an award to a particular person selected from a group of potential recipients and given for something that is accomplished, attained or carried out successfully. However, the type of prize contemplated in paragraph 56(1)(n) of the Act is restricted. The criteria for awarding the prize must be such that a recipient is rewarded for success in an area in which the recipient regularly applies effort. Therefore, an amount generally qualifies as a prize for purposes of paragraph 56(1)(n) of the Act if it is paid in recognition of a genuine accomplishment in a challenging area, whether it be of an academic, vocational or technical nature.

A prescribed prize, as described in section 7700 of the Income Tax Regulations, is 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, A prescribed prize meeting all of the above criteria is not included in computing the income of the recipient. For example, a Nobel Prize given to a scientist or the Governor General's Literary Award given to a professional writer would qualify, as would many community service awards.

It is a question of fact whether the monetary prizes and awards granted to the taxpayer by the XXXXXXXXXX are taxable under paragraph 56(1)(n) of the Act, However, based on the brief information provided to us, it appears that the prizes and awards would, in our view, be considered to be a prize and taxable under paragraph 56(1)(n) of the Act. Our comments are consistent with our position in document E9911565.

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Department's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version or they may request a copy severed using the Privacy Act criteria which does not remove client identity. Requests for this latter version should be made by you to Jackie Page at (819) 994-2898. The severed copy will be sent to you for delivery to the client.

We trust our comments will be of assistance.

John Oulton
Manager
Business, Property and Employment Section III
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch