Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
whether certain corporate giveaways and lottery schemes result in taxable benefits to employees
Position:
yes
Reasons:
DRAFT
Tax Executive Institute
Annual Tax Conference
May, 1996
EMPLOYEE INCENTIVES
A corporation provides incentives for its employees through the use of giveaways and lottery schemes. Interpretation Bulletin IT-213R "Prizes from Lottery Schemes, Pool System Betting and Giveaway Contests" discusses the tax treatment for these situations. For a prize from a lottery scheme not to be taxable income to the employee, the employee must have purchased a chance to the prize. An employer-promoted contest would be considered income when a corporation has a history of providing bonuses to its employees.
Question A
A lottery is run in which all employees in a location or branch of the corporation are entered. No tickets are purchased but no one is excluded from having an equal chance at the prize. Would the value of the prize be considered taxable income to the winner of the lottery?
Department's Position
The value of the prize is required to be included in the employee's income under paragraph 6(1)(a) of the Act whether or not the employee purchases a chance to win the prize. Despite the element of chance involved in the awarding of prizes in such a situation, any prize awarded by the corporate employer would be received by an employee "in respect of...or by virtue of..." his or her office or employment. This is consistent with the comments found in paragraphs 6(b) and 10 of Interpretation Bulletin IT-213R.
Question B
Does the answer to A) change if the employees entered is a smaller population? For example, instead of a complete location, a department within that location was entered?
Department's Position
No.
Question C
A contest open to all employees is run and based on predetermined criteria, not related to the employee's employment duties, such as display of team spirit or suggestions for naming a project, building, team etc. A small sample is picked. This smaller group is entered into a lottery to determine the winner. Would the prize be considered taxable income to the winner?
Department's Position
As in the answer to the first part, any prize awarded through an employer-sponsored contest would be received by an employee "in respect of...or by virtue of..." his or her office or employment and thus be taxable under paragraph 6(1)(a) of the Act. We refer you to Interpretation Bulletin IT-316 "Awards for Employees' Suggestions and Inventions," in addition to paragraphs 6(b) and 10 of Interpretation Bulletin IT-213R. Awards which reward or encourage the making of suggestions by employees for improving processes, improving working conditions or saving costs etc. are income to recipient employees notwithstanding that, in some cases, the suggestion may not be directly connected with the employees' duties. In the cited examples, awards to employees for the naming of a project, building or team may not be directly related to the employee's duties but are connected with their employment.
Author:Sandra Short
File:961404
Date:April 29, 1996
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