0-(IT)I BETWEEN: MARIA KNAPIK-SZTRAMKO, Appellant, and HER MAJESTY THE QUEEN, Respondent, TRANSCRIPT OF REASONS FOR JUDGMENT Let the attached transcript of the Reasons for Judgment delivered orally from the Bench by conference call at Ottawa, Ontario on the 0 th day of September, 0, as modified on a non-substantive basis solely for the purposes of spelling, grammar and clarity, be filed. R.S. Bocock Bocock J. Signed at Ottawa, Ontario, this th day of October 0
Court File No. 0-(IT)I TAX COURT OF CANADA BETWEEN: MARIA KNAPIK-SZTRAMKO Appellant - and - HER MAJESTY THE QUEEN Respondent APPEARANCES: ---------------------- CONFERENCE CALL TO HEAR ORAL REASONS BEFORE THE HONOURABLE JUSTICE RANDALL S. BOCOCK at Courts Administration Service, 00 Kent Street, nd Floor, Ottawa, Ontario on Friday, September 0, 0 at : a.m. ---------------------- Mr. Robert McMechan Ms. Maria Knapik-Sztramko Mr. Richard Sztramko Mr. Paul Klippenstein for the Appellant for the Respondent Also Present: Ms. Karen Adamowicz Court Registrar 0 00 Elgin St., Suite 0 Bay Street, Suite 00 Ottawa, Ontario KP L Toronto, Ontario MH T
0 0 Ottawa, Ontario --- Upon commencing on Friday, September 0, 0 at : a.m. THE REGISTRAR: Good morning. I would like to call to order this session of the Tax Court of Canada held this 0th day of September 0 by telephone conference call. My name is Karen Adamowicz. I m a judicial assistant with the Tax Court of Canada and I will act as registrar of the court for today s session. Although it is unlikely, should your line become disengaged during the call, the court will not know. Accordingly, the session of the court will continue. Kindly contact the court and advise that you were disconnected. We will address that situation if and when it arises. If you are participating in this telephone conference call on a cell phone, please ensure the mute button is activated. The Honourable Justice Randall Bocock will preside today for the purposes of delivery of the court s judgement by way of oral decision in the matter of Maria Knapik-Sztramko versus Her Majesty the Queen, court File Number 0-(IT)I. Representing the appellant are Robert McMechan, Maria Knapik-Sztramko and Richard
0 0 Knapik-Sztramko; and representing the respondent is Paul Klippenstein. Without further delay then, Mr. Justice Bocock will now proceed with the session. JUSTICE BOCOCK: Thank you. Good morning. MS. KNAPIK-SZTRAMKO: Good morning. MR. MCMECHAN: Good morning. MR. KNAPIK-SZTRAMKO: Good morning. MR. KLIPPENSTEIN: Good morning. JUSTICE BOCOCK: The following constitute oral reasons for judgement delivered from written notes at a conference call scheduled on the 0th of September 0 in the matter heard before me on the 0th of September at Ottawa between Maria Knapik-Sztramko and Her Majesty the Queen. The appellant is an opera singer. In, early in her career, Ms. Knapik-Sztramko entered a competition in order to receive a prestigious prize worth many thousands of dollars from a renowned opera-supporting foundation in New York City, the Gerda Lissner Foundation. She won the competition and monies were paid from to 00. These monies consisted of the payment for singing coaches, stage presence training, physical training, accommodation and travel expenses when abroad and a monthly stipend.
0 0 There were conditions attached to these monies related to: the forbearance of undertaking lesser engagements and performances, accepting counsel as to appropriate coaches, agents and advisors and also other career-enhancement supports. Paragraph ()(n) of the Income Tax Act provides that all amounts received for prizes for achievement, assuming such sums are not professional or business income, are to be included in other income for a year of the taxpayer. The one exception is for prescribed prizes which are tax exempt. Regulation 00 exempts a prize recognized by the general public and which is awarded for meritorious achievement in the arts ( prescribed prize ). As an exception to this exemption, excluded from the definition of prescribed prize are monies reasonably regarded as having been received as compensation for services rendered or to be rendered. If the sums under paragraph ()(n) are not a prescribed prize (and therefore tax exempt), then certain deductions are nonetheless permitted under subsection () of the Act to the lesser of the amount included in income for the prize, less certain allowable expenses provided they fall within certain categories.
0 0 Ms. Knapik-Sztramko is here because the Minister claims the amounts received from the Foundation are professional income. In the alternative, the sums received are a prize which is not a prescribed prize within the meaning of Regulation 00. And lastly, if not a prescribed prize, then no deduction should be allowed for the expenses otherwise claimed by the Appellant. For the reasons below, the court finds that the monies awarded by the Foundation were a prescribed prize within the meaning of paragraph ()(n) and Regulation 00 of the Act. As to the respondent s position at the hearing, it was argued that the monies received were in the first instance professional income because the activities funded by the Foundation monies were essentially the same activities undertaken by the appellant in her professional activities as an opera singer. The Foundation specified the conditions for the receipt of the money generally, which coaches might be retained or which could not. In addition, the Foundation paid monthly amounts for living, accommodation and travel expenses and stipulated the requirement that in some cases, money be paid directly by the
0 0 Foundation to third-party payees providing service to the appellant. The nature of such payments, coupled with needed prior approval for certain appearances other than those arranged by the Foundation all militate, in the Crown s submission, to capture the amounts within the broad definition of Section. of the Act as professional income. In rejecting these arguments of the respondent, the court references the following facts: The Foundation did not have any employment or service agreement with the appellant but merely imposed on the appellant constraints related to the pursuit of an enhanced opera career by paying for coaches, opera language teachers, acting and dance lessons and related attendant costs in pursuance of attending enhanced prestigious auditions. Secondly, the Foundation per se did not present, publicly sponsor, nor subcontract or second its prize recipients to specific operatic companies. Thirdly, the Foundation received no benefit in the form of remuneration, consideration or promotion for its underwriting of activities designed to enhance the recipient s opera skills, aside from the altruistic goal of
0 0 having promoted enhancement of rising opera singers. Moreover legally, to determine that monies received are income within the general provisions of the Act which are otherwise specified in Subsection (), would disregard the intent of Parliament to deal distinctly with the taxation of such scholarship, bursary and prize amounts as in Schwartz v Her Majesty the Queen [] SCR at paragraph. Since the court finds that the monies were a prize, it asks are they a taxable prize or a prescribed prize within the meaning of the Act? The respondent argued that the prize fell into the final but for exemption to a prescribed prize within Regulation 00. The respondent conceded that the general public nature of the prize and the meritorious achievement requirements were both met, but that the prize was an amount which could reasonably be regarded as having been received as compensation for services rendered. The respondent further contends this is so because a broad view of compensation for services, when ascribed a common meaning within the French version of the regulation render such amounts as those received to be reasonably
0 0 considered to have been received in exchange for services. According to the respondent, this would mean that the following are evidence of amounts of compensation or are amounts received in exchange for services: coaching, career development activities, language training, support for living arrangements, the fact that money was frequently paid to third-party payees and the career counselling and advice, all of which were agreed by the appellant to have been expended to enhance her skills as an operatic singer, which was her calling. In short, the respondent s position is that the appellant undertook a certain course of action and provided services in exchange for the money, albeit prize money. This argument fails for several reasons. Regulation 00 does not speak of conditions, restraints or subsequent oversight or directed third-party payments by the payor of such prize monies. Within the French version of Regulation 00 cited, the exemption extinguishes a prescribed prize if amounts may be reasonably considered to be received in exchange for services.
0 0 When combined with the English version of the regulation, factually this cannot be reasonably said to have occurred because: firstly, the Foundation received no services from the appellant; secondly, the undertakings of Ms. Knapik-Sztramko financed by the prize were not performances but were consistently comprised of training, support and education to enhance her skill proficiency and refinement of performance if and when undertaken by the appellant on her own behalf; and thirdly, it may be more or at least as reasonable to conclude that the Foundation s oversight through career counselling, references to skilled coaches, training and direct payment to third parties was implemented by the Foundation in order to ensure its goal of enhancing aspiring careers, like the appellant s, and to ensure this effort would be achieved in accordance with the objects and goals of the Foundation. No evidence was submitted by the Crown to show that any benefit on behalf of the Foundation was made, nor in fact was an assumption made in the reply that the amounts received were compensation in exchange for services.
0 0 0 Factually, this required evidence to be adduced and the court favours the evidence of the appellant in this regard and cannot reasonably consider the prize amounts to have been received in exchange for services. Moreover, the services provided were an agreement to undertake activities to enhance career achievements, itself related to the basis upon which the appellant first won the prize when she entered the process. Factually, the course of study, improvement and enhancement including the nonperformance covenant actually lessened the frequency of opera performances for fees during the period the prize was in effect. The identification of the appellant as someone worthy of specialized study and training was the basis for awarding the prize from the Foundation s perspective. This prize was not a relationship of, or in substitution for, employment, but a prize awarded on merit with reasonable conditions attached in order to ensure that the burgeoning talent identified was further refined by the benefactor. Given this finding by the Court, the third issue of expense deductions need not be considered; however, the evidence was also clear that there should be an offsetting deduction for
0 0 payments made directly to third-party coaches and teachers where such sums were included by the Minister in other income of the taxpayer as monies received from a non-prescribed prize. As mentioned however, this point is moot. Therefore, on the basis of the foregoing, the sum of $,00.0 is found to be a prescribed prize within the meaning of Regulation 00. In addition, the appellant is awarded her party and party costs in accordance with Section of the Tax Court of Canada rules, informal procedures for a full day of hearing. Thank you. MS. KNAPIK-SZTRAMKO: Thank you very much. THE REGISTRAR: That concludes the session of the Tax Court of Canada held before Mr. Justice Bocock. I would now ask each of you to disconnect the line, at which time the court will be adjourned. Thank you. MS. KNAPIK-SZTRAMKO: Thank you very much. Have a good day.
THE REGISTRAR: You too. --- Whereupon the conference call ended on Friday, September 0, 0 at : a.m.