Principal Issues: A research group pays individuals as little as one $10 payment and as much as $400 per month, to test various products. Whether or not these amounts are taxable.
Position: The one $10 payment is not taxable, but the ongoing $400 per month is taxable.
Reasons: The individuals who received one isolated $10 payment are in receipt of an amount that does not trigger any income tax consequences. However, the individuals who received $400 per month in recognition for testing services provided, or to be provided, must include the amounts in income for tax purposes. Depending on whether the individuals are employees or self-employed, the regular ongoing amounts are taxable as either employment or business income.
March 10, 2005
Mr. Jim Simpson HEADQUARTERS Winnipeg Tax Services Office Kathryn McCarthy, CA Client Services Division
Attention: Jim Simpson
2004-010856
Product Testing Income
We are writing in response to your letter of December 16, 2004, concerning the above noted subject.
You described a situation where a research group pays individuals as little as one $10 payment, and as much as $400 per month, to test various products. You enquired as to whether or not these amounts are taxable under the Income Tax Act (the Act).
Our Comments
Generally, section 5 of the Income Tax Act (the Act) requires that an employee include in income from an office or employment all salary, wages and other remuneration, including gratuities, received by the taxpayer in the year. Paragraph 6(1)(c) also requires that a taxpayer include in employment income all director's or other fees received in the year. Section 9 requires a taxpayer to include in income from a business the taxpayer's profit from that business for the year.
It is our view that the individuals who received one isolated $10 payment are in receipt of an amount that does not trigger any income tax consequences. However, the individuals who received $400 per month in recognition for testing services provided, or to be provided, must include the amounts in income for tax purposes. Depending on whether the individuals are employees or self-employed, the regular ongoing amounts are taxable as either employment or business income. In general terms, product testing payments made to individuals must be reported on a T4 slip for employees or on a T4A slip for independent contractors.
We trust our comments will be of assistance to you.
John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch