Tax & Trade Blog

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INCOME TAX IMPLICATIONS 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.

A recent Federal Court of Appeal (“FCA“) decision in Pillon v. Canada (2024 FCA 24) highlights the difficulties that Tax Debtors will face if trying to avoid GST and income tax debts.  Both the Excise Tax Act (“ETA”) and the Income Tax Act (“ITA”) have extremely powerful collections tools allowing the Canada Revenue Agency (“CRA”) to assess certain non-arm’s length persons (think spouses, children, relatives, close friends and associates) that have been transferred a Tax Debtor’s property for less than fair market value (“FMV”).  These rules can even apply to corporate shareholders receiving dividends from delinquent corporations.