Principal Issues: [TaxInterpretations translation] Does a music student have to include in the student’s income under paragraph 56(1)(n) the awards the student received for participating in various XXXXXXXX music competitions?
Position: None
Reasons: Question of fact.
XXXXXXXXXX 2010-036239 I. Landry, M. Fisc.
June 28, 2010
Dear Sir,
Subject: Award income
This is in response to your letter of April 1, 2010, in which you asked us whether a music student must include, in the student’s income, awards received for entries in various XXXXXXXXXXXX music competitions.
Unless otherwise indicated, all legislative references herein are to the provisions of the Income Tax Act (the "Act").
Our Comments
As stated in paragraph 22 of Information Circular 70-6R5, Advance Income Tax Rulings, it is the practice of the Canada Revenue Agency ("CRA") not to issue written opinions with respect to proposed transactions otherwise than by way of advance income tax rulings. Furthermore, when determining whether a completed transaction has received the proper tax treatment, that determination is first made by our Tax Services Offices following a review of all facts and documents, which is generally performed as part of an audit engagement. However, we can offer the following general comments that we hope you will find useful.
Paragraph 56(1)(n) requires a taxpayer to include in income the total of all amounts received in the year as a scholarship, fellowship or bursary, or a prize for achievement in a field of endeavour ordinarily carried on by the taxpayer, other than a prescribed prize, that exceeds the greater of $500 and the lesser of the amounts determined under subparagraphs 56(1)(n)(ii) and (iii).
Section 7700 of the Income Tax Regulations (the "Regulations") defines "prescribed prize" for the purposes of subparagraph 56(1)(n)(i). It is any prize that is recognized by the general public and that is awarded for meritorious achievement in the arts or otherwise, but does not include any amount that can reasonably be regarded as having been received as compensation for services rendered or to be rendered.
Since the awards described in the particular situation would be awards for outstanding achievement in a field of endeavour ordinarily carried on by the taxpayer, such awards would therefore be required to be included in the taxpayer's income under paragraph 56(1)(n), unless they are considered to be awards described in section 7700 of the Regulations.
Whether an award is covered by section 7700 of the Regulations is, however, a question of fact that can only be resolved after a full analysis of all relevant information. Due to the limited information provided to us with respect to the various contests in which the taxpayer allegedly participated, we are unable to comment on the application of this section in the context of this request.
We hope that our comments are of assistance.
Best regards,
Randy Hewlett
Manger
for the Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.