We have confirmed the legitimacy of the prize. (The contest was handled by ePrize and we've been in direct communication with a rep from the hotel chain.) To redeem the prize we have been asked to fill out an IRS W8BEN Foreign Status form. The instructions for the form state that "Foreign persons are subject to U.S. tax at a 30% rate on income they receive from U.S." Unlike casino winnings (for which the 30% tax can be recouped by a Canadian winner) I cannot find any information on the foreign tax liability for points-based sweepstakes.
When asked about taxes, a representative from hotel chain said the following: "Although I cannot provide you with tax advice, it is likely that your tax liability will not be based on the published retail value of the points, but instead based on internal costs to provide the points."
The published retail value of the points was $35,000 and we've been told that the internal cost will be around $15,000. The points can be cashed in for approximately 12 round-trip overseas flights, or (for the sake of monetary comparison) converted into $10,000 worth of Amazon gift-cards.
So here are my questions:
- Have you been in a similar situation? Care to share your "Canadian winner of US sweepstakes" taxation experience?
- Can you suggest a firm to contact that will know how to deal with this situation? (So far the Canadian tax advisers we've contacted haven't been overly helpful.)
- Should we accept the prize, even if it means paying $4,500 to $10,500 USD? (The former being tax on internal costs, the later being tax on the retail value of the points.
- If we accept the points and are surprised with a giant tax bill (say the full $10,500) can we return the prize to avoid the taxation?