Principal Issues: Does a particular prize [XXXXXXXXXX] meet the definition of a prescribed prize under Regulation 7700?
Position: Likely
Reasons: Legislation and previous positions
February 8, 2016
Roger Clarke HEADQUARTERS Program Officer Income Tax Rulings Directorate Assessment, Benefit, and Business and Employment Division Service Branch George A Robertson, CPA, CMA 905-721-5196
2015-061046
Prescribed Prizes - XXXXXXXXXX
This is in response to your email of September 23, 2015, asking for our opinion on whether the XXXXXXXXXX (the “Prize”) in the amount of $XXXXXXXXXX awarded to XXXXXXXXXX, is a “prescribed prize” for the purpose of paragraph 56(1)(n) of the Income Tax Act (the “Act”) and section 7700 of the Income Tax Regulations (the “Regulations”).
According to the information we received, the prize is awarded by the XXXXXXXXXX (the “Society”) in conjunction with the XXXXXXXXXX (the “Association”) for XXXXXXXXXX achievement and contribution. We also understand that Association members are eligible to nominate or self-nominate and the award recipients should be members of the Association; however, this membership can be arranged after the award recipients are selected. The award recipients will be selected by a committee appointed jointly by the Society and the Association, and confirmed by the Society’s senate. XXXXXXXXXX.
Our Comments
Paragraph 56(1)(n) of the Act includes in a taxpayer’s income the total of all amounts received in the year as or on account of a prize for achievement in a field of endeavour ordinarily carried on by the taxpayer. However, paragraph 56(1)(n) specifically excludes a prescribed prize. For this purpose, 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.
The general position of the Canada Revenue Agency with respect to whether a particular prize is considered “a prize for achievement in a field of endeavour ordinarily carried on by the taxpayer” for purposes of paragraph 56(1)(n) of the Act is discussed in Income Tax Folio, S1-F2-C3, Scholarships, Research Grants and Other Education Assistance (the “Folio”). Paragraph 3.53 of the Folio states that an amount generally qualifies as a prize for purposes of paragraph 56(1)(n) if it is paid in recognition of a genuine accomplishment in a challenging area, whether it be of an academic, vocational or technical nature. Paragraph 3.56 of the Folio also explains that it is also a question of fact whether a prize is considered to have been recognized by the general public for the purposes of section 7700 of the Regulations. In making this determination, one must consider whether there is evidence suggesting a high level of public awareness of the prize and the extent to which the announcement or receipt of the prize is widely publicized by the media.
Based on the limited information provided, it appears that the Prize is awarded for meritorious achievement in the arts or sciences and 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 likely qualifies as a prescribed prize as defined in section 7700 of the Regulations.
Unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency’s electronic library. After a 90-day waiting period, a severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. You may request an extension of this 90-day period. The severing process removes all content that is not subject to disclosure, including information that could reveal the identity of the taxpayer. The taxpayer may ask for a version that has been severed using the Privacy Act criteria, which does not remove taxpayer identity. You can request this by e-mailing us at: ITRACCESSG@cra-arc.gc.ca. A copy will be sent to you for delivery to the taxpayer.
We trust our comments will be of assistance.
Pamela Burnley, CPA, CA
Manager
Tax Credits and Ministerial Issues
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch