Principal Issues: Whether a prize received by an employee is included in income pursuant to paragraph 6(1)(a) of the Act.
Position: In this case, yes.
Reasons: Since the only individuals eligible to win the prize were the employees of the multi-national corporation, the employee received the prize "in respect of" or "by virtue of" his/her employment.
2005-011131
XXXXXXXXXX A. Seidel, CMA
(613) 957-2058
February 1, 2005
Dear XXXXXXXXXX:
Re: Taxable Benefits
This is in reply to your January 13, 2005 e-mail in which you requested our comments with respect to the application of paragraph 6(1)(a) of the Income Tax Act (the "Act") to a prize distributed by the foreign parent corporation to an employee of its Canadian subsidiary.
You describe a situation in which a multi-national corporation raffled off an automobile as a prize to one employee of its world-wide workforce. The raffle was open to all employees of the multi-national corporation and its subsidiaries and was not related to the employees' employment duties. The winner of the automobile happens to be an employee of its Canadian subsidiary. You query whether the Canadian employee must include the value of the automobile in his/her employment income pursuant to paragraph 6(1)(a) of the Act.
The particular circumstances in your letter on which you have asked for our views relate to a factual situation involving a specific taxpayer. To the extent that you require confirmation of the tax consequences of proposed transactions involving a specific taxpayer, we bring to your attention Information Circular 70-6R5, Advance Income Tax Ruling ("IC 70-6R5"). As explained in IC 70-6R5, it is not this Directorate's practice to comment on proposed transactions involving specific facts other than in the form of an advance income tax ruling. However, we are prepared to offer the following general comments which may be of assistance.
In general, paragraph 6(1)(a) of the Act requires a taxpayer to include, in computing income for a taxation year, as 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 any non-cash benefits received by an employee in a taxation year.
Paragraph 1 of Interpretation Bulletin IT-213R - Prizes from Lottery Schemes, Pool System Betting and Giveaway Contests states that the amount or value of a prize received by a taxpayer from a lottery scheme is not taxable as either a capital gain or income unless, due to the circumstances applying to the lottery scheme, the prize can be considered to be income from employment, business or property or a prize for achievement.
Despite the element of chance involved in the awarding of the above-noted prize, the fact that the only individuals eligible to win the prize were the employees of the foreign parent and its subsidiaries, it is our view that the prize received by the employee of the Canadian subsidiary would be "in respect of ... or by virtue of" the individuals employment. Accordingly, the value of the prize, being the total costs incurred by the parent to acquire the automobile, would be included in the employee's income pursuant to paragraph 6(1)(a) of the Act.
Yours truly,
John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch