Principal Issues:
Calculating the "eligible amount" of a tax receipt for a "Texas Hold'um" poker fund raising tournament in accordance with, proposed subsection 248(31) of the Income Tax Act (the "Act").
Position:
The methodology used is consistent with the approach taken in Income Tax Technical
News No. 26, dated December 24, 2002, and proposed subsection 248(31) of the Act.
Reasons:
In calculating the "eligible amount" of a tax receipt issued for a fund raising event, such as a "Texas Hold'um" poker tournament for the purposes of proposed subsection 248(31), the amount of the "advantage" allocated to each participant will include the total prize money divided by the number of participants and an amount equal to what a participant would pay to play in a similar "Texas Hold'um" poker tournament that is not sponsored by a charity.
XXXXXXXXXX 2005-014243
April 25, 2006
Dear XXXXXXXXXX:
Re: Charitable Organisations and Tax Receipts
This is reply to your letter dated July 15, 2005 and your subsequent letter of February 24, 2006, which provided additional information. You have requested our views as to the eligible amount of a tax receipt that a registered charity could provide to participants in a "Texas Hold'um" fund raising poker tournament, which is sponsored by the charity.
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. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments.
General Comments
As you noted in Income Tax Technical News No. 26, dated December 24, 2002, the Canada Revenue Agency set out the approach for determining the eligible amount of a tax receipt that could be issued in a fund raising golf tournament. In our opinion this approach or methodology should be used in a fund raising event such as this.
With regard to a "Texas Hold'um" fund raising event, the total prize money divided by the number of participants would constitute an advantage that would be allocated to each participant in calculating each participant's "eligible amount" for the purposes of proposed subsection 248(31) of the Income Tax Act. The amount of the advantage will also include an amount equal to the amount that a participant would pay to play in a similar "Texas Hold'um" poker tournament that is not sponsored by a charity. The advantage being measured here is analogous to the green fee in a fund raising golf tournament.
For illustrative purposes we offer the following example:
Number of participants 500 Entrance Fee $ 250 Re-buy Option $ 100* Fair Market Value of Dinner $ 20 Prize Money $20,000 Fee for a non-charity tournament offering prize money of $40,000 for 1,000 participants (Fee for similar event) $ 100**
Eligible Amount Without Re-buy
Contribution $ 250
Less: Dinner (20)
Prizes (20,000/500) (40)
Fee for similar event (100)
Eligible Amount $90Eligible Amount With Re-buy
Contribution $ 350
Less: Dinner (20)
Prizes (40)
Fee for similar event (100)
Eligible Amount $ 190*The "Re-buy Option" allows a participant that loses all of his/her chips in the first hour of play to purchase additional chips for $100. The prize money however is not increased should anyone exercise this option.
**This amount is for illustrative purposes, and would have to be determined with regard to the fee structure and prizes of other "Texas Hold'um" poker tournaments. The amount used in no way reflects any empirical evidence or the Agency's view as to what the fair market value of such an entry fee would be. If such amount cannot reasonably be determined it is likely that the eligible amount will be zero.
We hope that this letter clarifies our views with regard to this and other fund raising tournaments.
Yours truly,
F. Lee Workman
Section Manager
Charitable and Financial Institution Sectors
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch