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.
We are writing in reply to your letter of June 22, 1989, wherein you requested our views regarding the income tax implications of a lottery scheme involving bonus interest payments on guaranteed investment certificates (GIC's).
Although it is not clear from your letter it would appear that certain specified holders of GIC's issued by XXX would be eligible to receive a bonus interest payment of 1/4% on their GIC's. Presumably, the selection of those GIC holders who are awarded such bonus interest would be made on some random basis.
You have requested that we confirm your understanding that the bonus interest paid, in a lump-sum at the end of a GIC's term, would not be interest income to the recipient whereas bonus interest paid on interest payments would probably be taxed as interest income.
Our Comments
Paragraph 1 of Interpretation Bulletin IT-213R entitled "Prizes from Lottery Schemes, Pool System Betting and Giveaway Contests" states, in part, that:
- "The amount or value of a prize received by a taxpayer from a lottery scheme is not taxable as either a capital gain or income unless. due to the circumstance applying to the lottery scheme. the prize can be considered to be income from . . . property . . ." (Emphasis Added)
It is our view that the circumstances applying to this contest prize relates to the existence of an investment obligation between XXX and the investor, and any amount received by a particular investor would be income from property and taxable in the recipient's hands at that time.
In other words, the bonus interest received by a particular taxpayer would be taxable under paragraph 12(1)(c) of the Income Tax Act, regardless of the method of calculation or payment.
Additionally, as the bonus awarded in the lottery can be considered as an inducement, the provisions of paragraph 12(1)(x) would appear to include such amounts in income.
We trust that these comments are of assistance.
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© Her Majesty the Queen in Right of Canada, 1989
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© Sa Majesté la Reine du Chef du Canada, 1989
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