Principal Issues: [TaxInterpretations translation] Are the prizes awarded by CEAD Diffusion a prescribed prize within the meaning of section 7700 of the Income Tax Regulations and, therefore, excluded from the calculation of the income of those who receive them?
Position: Yes, except for the Prime à la création du prix Gratien-Gélinas, which in all likelihood represents business income for the theatre company receiving it.
Reasons: With the exception of the Prime à la création du prix Gratien-Gélinas, the prizes are recognized by the general public and are awarded for meritorious achievement in the arts and are not considered to be received as compensation for services rendered or to be rendered.
XXXXXXXXXX 2009-034468
February 19, 2010
Dear Madam,
Subject: Prescribed Award
This is in response to your letter of October 13, 2009, in which you requested our opinion regarding the tax treatment of the Gratien-Gélinas, Louise-Lahaye and Michel-Tremblay prizes awarded by CEAD Diffusion, an organization created by the Centre des auteurs dramatiques ("CEAD").
Unless otherwise indicated, all statutory references herein are to the provisions of the Income Tax Act (the "Act").
More specifically, the Gratien-Gélinas prize is a two-part award that supports emerging French-language playwrights in Quebec and Canada by offering bursaries for a play. First, the $15,000 Prime à la création prize is given to a theatre company that brings the text to the stage. Furthermore, the Françoise-Berd bursary in the amount of $10,000 is paid to the author of the work.
The Louise-Lahaye prize supports the next generation of playwrights for young French-language audiences in Quebec and Canada by contributing financially to the recognition of a work through a bursary and by helping in various ways to promote the work or its author. The amount of the Louise-Lahaye prize is $10,000.
Finally, the Michel-Tremblay prize aims to contribute to the recognition of French-language playwriting in Quebec and Canada by highlighting the excellence of a text created on stage. The selected author receives $10,000 from CEAD Diffusion and, if the author is a Quebec playwright, an additional $10,000 from the Conseil des arts et des lettres du Québec.
The prizes, finalists and winners are promoted on the CEAD website and through press releases that are picked up by various media.
You wish to know if the Gratien-Gélinas, Louise-Lahaye and Michel-Tremblay prizes can be considered as prescribed prizes under section 7700 of the Income Tax Regulations (hereinafter the "Regulations") and thus be excluded from the application of paragraph 56(1)(n).
Our Comments
It appears that the situation described in your letter and summarized below could constitute an actual situation involving taxpayers. As explained in Information Circular 70-6R5, it is not the practice of the Directorate to provide comments on proposed transactions involving specific taxpayers otherwise than in the form of an advance income tax ruling. If your situation involved specific taxpayers and one or more completed transactions, you should submit all relevant facts and documentation to the appropriate Tax Services Office for its opinion. However, we can offer the following general comments that may be helpful.
Section 56(1)(n) provides that an amount received as a prize for achievement in a field of endeavour ordinarily carried on by the taxpayer is taxable unless it is considered to be a prescribed prize described in section 7700 of the Regulations. Paragraph 56(1)(n) does not apply to amounts received in the course of a business, and amounts received in respect of, in the course of or by virtue of an office or employment, or payments received from registered education savings plans, which are required to be included in income under paragraph 56(1)(q).
A prize that satisfies all the criteria for a "prescribed prize" is not included in computing the recipient's income, even if the award is related to achievement in a field of endeavour ordinarily carried on by the recipient. Section 7700 of the Regulations defines a prescribed award 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. For example, a Nobel Prize awarded to a scientist or the Governor General's Literary Award to a professional author would fall into this category, as would many awards for service to the community.
With respect to the Louise-Lahaye and Michel-Tremblay Prizes, we are of the view that they may be considered as prescribed prizes covered by section 7700 of the Regulations. These prizes are sufficiently recognized by the general public and are awarded for meritorious achievement in the arts. We do not believe that these prizes are received as compensation for services rendered or to be rendered. This conclusion would also apply to the Françoise-Berd bursary, the second component of the Gratien-Gélinas prize.
With respect to the Prime à la création prize, which is paid to a theatre company that brings the award-winning playwright's script to the stage, we believe that this award should be included in computing the theatre company's income since it is, in all likelihood, received in the course of carrying on a business.
Best regards,
François Bordeleau, Advocate
Manager
Business and Partnerships Section
Income Tax Rulings Directorate.