Income Tax Implication Of Prizes & Awards

HOW TO VALUE THEM FOR INCOME TAX PURPOSES?

In a previous blog post, we wrote about the GST/HST implications of prizes and awards for direct sellers. In this post, we turn to the income tax consequences, a topic that often causes confusion for Independent Sales Contractors ("ISCs"). Understanding how these awards are treated for tax purposes is important as missteps can lead to unintended reporting errors or even overstating tax liabilities.

Background on Reporting Income

Just like all other Canadians, ISCs must report their taxable income and pay the appropriate amount of tax to the Canada Revenue Agency (the "CRA"). The taxable income of an ISC is determined under Subdivision b of Division B of the Income Tax Act (the "ITA"), and includes the taxpayer's "profit" from his or her business. Although "profit" is not defined in the ITA, generally ISCs must take into consideration all income received from business (whether sales, commissions, bonuses, etc.),