Principal Issues: Whether a lottery ticket and the winnings from a lottery ticket, given to an employee by the employer as a reward, are taxable?
Position: Question of fact.
Reasons: An award for performance-related reasons does not qualify for CRA's current policy on gifts or awards. The taxpayer is required to include in income from office or employment the value of benefits of any kind whatever received or enjoyed in the year in respect of, in the course of, or by virtue of, an office or employment. A prize from a draw as a result of a ticket provided to the employee by the employer would not be a benefit of employment in certain circumstances such as when the draw is open to the general public, the draw is not operated or controlled by the employer, and the prize is not provided by the employer. Lottery winnings are generally not taxable as they are not considered income from a source, pursuant to 40(2)(f).
2010-036026
XXXXXXXXXX Gillian Godson
(613) 957-9229
May 11, 2010
Dear XXXXXXXXXX :
Re: Employee Lottery Ticket Winnings
This is in response to your email of March 12, 2010, wherein you requested information regarding the tax implications of gifts of provincially-run lottery tickets to employees, in particular if the employee should win a prize as a result of a gift of a lottery ticket from an employer.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request. For more information concerning advance income tax rulings, please refer to Information Circular 70-6R5 dated May 17, 2002. Where the particular transactions are completed, the enquiry should be addressed to the relevant Tax Services Office. The following comments are, therefore of a general nature only and are not binding on the Canada Revenue Agency ("CRA"). All publications referred to herein can be accessed on the CRA website at the following address: http://www.cra-arc.gc.ca/formspubs/menu-e.html.
In general, paragraph 6(1)(a) of the Income Tax Act (the "Act") requires a taxpayer to include in the computation of income from an office or employment the value of benefits of any kind whatever received or enjoyed by the taxpayer in the year in respect of, in the course of, or by virtue of an office or employment. This would include non-cash benefits received by an employee in a taxation year. Therefore, in the example you have provided, an employee who receives a provincially-run lottery ticket from their employer for performance-related reasons would be required to include the fair market value of the lottery ticket in the calculation of their taxable income. The CRA's administration policy with respect to gifts and awards was amended as of January 1, 2010, and is available on our website at www.cra-arc.gc.ca.
Generally, the fair market value of the non-cash reward would be the highest price obtainable in an open market by parties acting at arm's length. It is the CRA's position that the fair market value is determined at the date of disposition, which is generally the date beneficial ownership of the property is transferred. Accordingly, the date of disposition by the employer of a ticket for a chance to win a prize in a lottery is the date the ticket is transferred to the employee. If the date of disposition is prior to the time that the winning lottery ticket is drawn, the ticket's fair market value is determined by its price which, in the circumstances you have described, is the ticket face value of $ 5.
With respect to the tax consequences of an individual who has received lottery winnings, the CRA generally considers lottery winnings to be non-taxable pursuant to 40(2)(f) of the Act. The receipt of a lottery prize is generally not taxable as it is not considered income from a source of employment, business or property, and therefore would not be included in the calculation of taxable income.
Please refer to Interpretation Bulletin IT-213R "Prizes from Lottery Schemes, Pool System Betting and Giveaway Contests", available on our website at cra-arc.gc.ca, for additional information with respect to prizes from lotteries.
We trust the above comments will be of assistance.
Yours truly,
Director
International and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch