14 March 2013 Ministerial Correspondence 2013-0477251M4 - Prescribed Prizes, Lottery Winnings, Insurance

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: 1. The taxpayer is expressing general concerns about the difference in taxation of lottery winnings, Olympic prize money and the cash surrender value of life insurance policies.

Position: 1. Generally lottery winnings are not income from a source, however Olympic prize money and the cash surrender value of a life insurance policy are income from a source.

Reasons: 1. The Act.

XXXXXXXXXX

March 14, 2013

Dear XXXXXXXXXX:

Thank you for your correspondence of February 1, 2013, about the taxation of certain income amounts.

The Income Tax Act states that a taxpayer's income must include any amounts the taxpayer received from a source like employment, business, or property. Lottery winnings are not considered to be income from such a source and they are generally non-taxable under the Act.

You believe the performance awards received by successful Olympic athletes should be free from tax. I can confirm that such awards must be included in an athlete's income. Paragraph 56(1)(n) of the Act states that the total of all amounts a taxpayer receives in a tax year as, or on account of, a prize for achievement in a field of endeavour ordinarily carried on by the taxpayer, other than a prescribed prize, must be included in the taxpayer's income for that tax year. While Canadians are proud of the Canadian Olympic athletes' accomplishments, the performance awards the athletes receive from programs such as the Athlete Excellence Fund are not awarded in recognition of service to the public and do not qualify as a prescribed prize.

The Government of Canada recognizes that sport is a defining part of Canada's identity and is committed to supporting Canada's amateur athletes through tax measures and through its partnerships with the Canadian Olympic Committee and Own the Podium. In addition to program funding through Sport Canada, the Government of Canada amended the Act for the 2008 and later tax years to make sure a broader category of amateur athletes can take advantage of tax deferral arrangements through amateur athletic trusts.

With respect to the taxation of the cash surrender value of a life insurance policy, you are concerned that individuals are being taxed on the return of their premiums. When a policy matures or is surrendered, the policy holder is required to report a gain for tax purposes when the proceeds of disposition of the policy are more than the adjusted cost base (ACB) of the policy right before the disposition.

For the purposes of the Act, the ACB of a policyholder's interest in a life insurance policy is determined by a specific formula. In general terms, the ACB of the original policy holder will be the amount by which the cash premiums paid by the policy holder and any income in respect of the policy that has previously been reported for tax purposes is more than the net cost of pure insurance under the policy. The insurer with whom the policy was held before its maturity or surrender date is required to report the amount of the gain on the policy in box 14, "Other income from Canadian sources," of the T5 information slip which the insurer must send to the policy holder. The insurer should also be able to give the policy holder information on the calculation of the proceeds of the disposition, the ACB, and the gain on the disposition.

The Canada Revenue Agency administers and enforces the Act as passed by Parliament. Changes to tax policy and amendments to the Act are the responsibility of the Department of Finance Canada. If you want to continue discussing this issue, you can write to the Tax Policy Branch of Finance Canada, 17th Floor, East Tower, L'Esplanade Laurier, 140 O'Connor Street, Ottawa ON K1A 0G5.

I trust the information I have provided is helpful.

Yours sincerely,

Gail Shea, P.C., M.P.
Minister of National Revenue

Robert Dubis
(905) 721-5191
2013-047725