22 August 2011 External T.I. 2010-0374461E5 - Prescribed prize

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: Is a $XXXXXXXXXX prize awarded by the XXXXXXXXXX to a professor at XXXXXXXXXX considered to be a "prescribed prize" for the purposes of subparagraph 56(1)(n)(i) and section 7700 of the Income Tax Regulations?

Position: Question of fact but likely yes.

Reasons: Based on the information provided, it appears that the Prize is awarded for meritorious achievement and is not a form of compensation for services rendered by the professor. Based on prior interpretations, it appears that the Prize meets the public recognition requirement despite not being widely publicized by the media.

XXXXXXXXXX 							2010-037446
								W. Doiron
August 22, 2011

Dear XXXXXXXXXX :

Re: Prizes & awards

This letter is in response to your request for our opinion on the tax treatment of certain prizes administered by XXXXXXXXXX ("University").

In your fax, you asked the following questions:

• Whether the XXXXXXXXXX ("Prize") awarded by the XXXXXXXXXX (the "Academy") to a professor at the University would be considered to be a "prescribed prize".
• Whether the payment of the Prize to the professor should be processed through the normal payroll system and reported on a tax slip or should it be paid through your Financial Services Area?
• Whether a separate award won by a retired professor can be treated as a prize with no withholding taxes and reported on a T4A slip?

Our comments

The value of a prize, in excess of the scholarship exemption, received in the year by a taxpayer for an achievement in a field of endeavour ordinarily carried on by the taxpayer is included in the taxpayer's income except where the prize is a prescribed prize. However, the value of any prize received by the taxpayer in the course of the taxpayer's business or in the course of or by virtue of the taxpayer's office or employment would not be considered a prize included in a taxpayer's income and would be included in the taxpayer's income as either self-employment income or employment income, respectively.

A prescribed prize is defined as 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. However, a prescribed prize will not include any amount that can reasonably be regarded as having been received as compensation for services rendered or to be rendered.

Specific determination of whether the Prize would be considered a prescribed prize is a question of fact. Based on the information provided, it appears that the Prize is recognized by the general public and is awarded for meritorious achievement. Accordingly, the Prize would qualify as a prescribed prize.

With respect to your second question on the processing of the prize payment and the tax reporting thereof, we advise that the manner in which you choose to process the payment of the prize is at your discretion. However, the payer of the prize is required to report the amount on a T4A slip but tax does not have to be withheld at source (see paragraphs 47-48 of Interpretation Bulletin IT-75R4).

In respect of your third question, whether a separate award won by a retired professor can be treated as a prize is a question of fact. If, based on the facts, the prize is determined to have been received by the retired professor in connection with his/her employment at the University then the retired professor would be required to include the amount of the prize into his/her employment income in the year of receipt. Additionally, the University would be required to withhold taxes consistent with the treatment required for employment income.

On the other hand, if the award is determined to be a prize (other than a prescribed prize) the University would be required to issue a T4A slip but tax would not have to be withheld at source (see paragraphs 47-48 of Interpretation Bulletin IT-75R4).

We trust these comments will be of some assistance.

Yours truly,

Lita Krantz
Assistant Director
International & Trust Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch