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: Whether a particular prize (the XXXXXXXXXX) meets the definition of a prescribed prize under Section 7700 of the Income Tax Regulations.
Position: Likely yes.
Reasons: Legislation and previous positions.
XXXXXXXXXX 2018-078060
R. El-Kadi
March 20, 2019
Dear XXXXXXXXXX:
Re: Prescribed Prizes and the XXXXXXXXXX
We are writing in response to your correspondence in which you asked whether the XXXXXXXXXX (the “Prize”) is a prescribed prize for purposes of paragraph 56(1)(n) of the Income Tax Act (the “Act”) and section 7700 of the Income Tax Regulations (the “Regulations”).
Based on the information that is available to us, the Prize is awarded to emerging artists who have been recognized by renowned XXXXXXXXXX organizations (such as the Canada Council for the Arts) to be among Canada’s most XXXXXXXXXX. A selection committee XXXXXXXXXX nominates candidates and assesses them XXXXXXXXXX. It is our understanding that the winner is announced on the website of XXXXXXXXXX, and his or her XXXXXXXXXX is promoted on a particular XXXXXXXXXX. It is also our understanding that the Prize consists of a cash amount, in addition to non-cash contributions valued at a set amount namely in the form of XXXXXXXXXX for the Prize winner.
In your correspondence, you referred to a multitude of websites where last year’s Prize winner was announced, thus suggesting the extent to which the announcement or receipt of the prize is widely publicized on the Internet. You also quoted paragraphs 3.56 and 3.57 of Income Tax Folio, S1-F2-C3, Scholarships, Research Grants and Other Education Assistance, regarding this subject. In your view, the Prize seems to meet the requirements in section 7700 of the Regulations for being a prescribed prize.
Our comments
This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC70-6R8, Advance Income Tax Rulings and Technical Interpretations.
Paragraph 56(1)(n) of the Act generally includes in income all amounts, in excess of a scholarship exemption, that are received in the year as a scholarship, fellowship, bursary, or prize for achievement in a field of endeavour ordinarily carried on by the taxpayer. However, any amounts received by the taxpayer in the course of the taxpayer’s business or in respect of, or in the course of or by virtue of the taxpayer’s office or employment would not be a prize included in a taxpayer’s income under paragraph 56(1)(n) of the Act. Such amounts would be included in the taxpayer’s business or employment income, as the case may be.
In addition, paragraph 56(1)(n) specifically excludes a “prescribed prize.” Section 7700 of the Regulations defines a “prescribed prize” 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 but does not include any amount that can reasonably be regarded as having been received as compensation for services rendered or to be rendered.”
It is a question of fact whether a prize or award is a prescribed prize. This generally requires a review of all relevant documentation and information, including the primary purpose for which the award was granted, the terms and conditions attached to the award, and the nature of the relationship between the recipient and the grantor. It is also a question of fact whether a prize can be regarded as compensation for services rendered or to be rendered.
Based on the information you sent us, it appears that the Prize is awarded for meritorious achievement in the arts (a field of endeavour ordinarily carried on by the Prize recipient) and it does not appear to be for services rendered or to be rendered. Additionally, based on our review, it appears reasonable to conclude that the Prize is recognized by the general public. Therefore, in our view, the Prize is likely to qualify as a prescribed prize as defined in section 7700 of the Regulations and, as such, it would not be required to be included in income under paragraph 56(1)(n) of the Act.
We trust that these comments will be of assistance to you.
Yours truly,
Lita Krantz, CPA, CA
Manager - Tax Credits and Ministerial Issues
Business and Employment Division
Income Tax Rulings Directorate
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