Tips & Advice, Turbo News

What Happens If I Win a Prize? Is it Taxable?

Whether a prize is taxable or not depends on what it is and how you got it.

If you win the lottery, your prize is tax-free.

(And you don’t have to pay any kinds of taxes or fees to the Canada Revenue Agency (CRA)  before you claim your prize; this is a scam and if someone tells you that you need to pay to receive a prize you’ve won through a lottery or sweepstakes , you should immediately report them.)

However, if you’ve won a prize through your workplace, it will be taxed in most cases.

For instance, if you win a prize draw, and the draw was only open to employees of the company, your prize is considered a benefit of employment and becomes a taxable benefit.

It’s the same story if you’re part of a team that wins a prize for top performance; the “thanks for a job well done” is, in the eyes of the Canada Revenue Service, performance pay  – another taxable benefit to the employee.

The one potential exception to this if you win a prize in a draw by a social committee in your workplace.

If the social committee itself paid for the prize and the committee is “funded entirely by the employees through fundraising activities” (CRA), then any gifts or awards the social committee gives out are non-taxable.

But if the committee is funded entirely by the employer, then any gifts or awards the social committee gives out are taxable benefits.

And if the employees and the employer jointly fund the social committee, generally, the percentage that is employer funded represents a taxable benefit to the employee, while the percentage funded by employees is not – which could make figuring out the taxable portion of the giant striped tiger the committee presented you with extremely problematical!

And If the Prize Is Taxable?

If the prize you’ve won is a taxable benefit, then your employer has to include the value of it in your income.

If the prize was something other than money, he or she has to calculate what the prize item is worth by determining its fair market value – “the price that can be obtained in an open market between two individuals dealing at arm’s length” (CRA).

Depending on what the item is, your employer may also have to include the GST/HST in the value of the benefit for income tax purposes, as well as provincial sales taxes.

Then he or she will add the value of the item to your income, taking and withholding payroll deductions in the usual fashion.

You’ll see the taxable gift on your T4 slip, included in box 14, “Employment income” and in the “Other information” area under code 40 at the bottom of the slip.