An Alberta woman who recently revived the old “write an essay, win a house” idea failed to get enough entries to finish the contest. The idea sounds great but most contests don’t work and even successful contests could result in tax headaches.
It’s an idea that’s been tried many times over the years in Canada: run an essay contest that offers your home as the top prize. You collect an entry fee from everyone who enters the contest, which allows you to dispose of a property that you were unable to sell.
Trouble is, I was unable to find one of these contests in Canada that had a successful outcome.
The most recent flurry of contests started this year when Alla Wagner of Millarville, Alta. held one for a home she valued at $1.7 million. Like most of these contests, contestants were requested to write an essay explaining why they deserved to win the house and send it along with a $25 entry fee. The fee would not be returned if a winner was chosen, but Wagner said a minimum of 68,000 entries would be required. Later she dropped that number to 60,000.
But by the time the contest came to an end, only 4,627 entries had come in, according to the Calgary Herald. Wagner is now in the process of refunding all the entry fees, less a small service fee to cover her expenses.
At least the contest got that far. In 2004, a similar contest in Grand Prairie, Alta. offered a hotel valued at $1.5 million as a grand prize, with entry fees set at $1,000. But shortly after the contest was launched, Alberta Justice shut it down, deeming it to be an illegal lottery. In the 1990s at least two other similar contests in Ontario were shut down by the Ontario Provincial Police.
For Wagner’s contest, the Alberta Gaming, Liquor and Cannabis (AGLC) agency launched an investigation by a team that included AGLC investigators, two RCMP members and a member from each of the Calgary and Edmonton police services, reports the Toronto Star. The investigators concluded that since the essay was not a game of chance, but would be judged on the merits of the entries, it wasn’t a lottery and was allowed to go ahead.
Though often touted as a unique new idea, these contests seem to date back to the 1996 move The Spitfire Grill, in which an essay contest was featured.
Wagner’s contest received lots of enthusiastic media coverage, with many stories stating that she was “giving away” her house – but that was only if she collected the $1.5 million in entry fees.
The publicity for Wagner’s contest failed to result in enough entries, but it did inspire several more people to launch contests of their own. In each case, it seems the homeowners tried to sell their homes using traditional means, but when they could not get the money they wanted, they decided to try a contest.
Ivan and Marsha Negrych are hoping that 17,000 people will send a 500-word essay and $100 to them by Oct. 31, 2019. The prize is a bed and breakfast in Cardston, Alta. that has been designated as an Alberta Historic Resource. The original log cabin, built in 1889, was extensively renovated and expanded from 1913 to 1929. It includes hardwoods from all over the world, intricate ceiling tiles and stained glass imported from Italy.
Ivan told the CBC that the bed and breakfast was on the market for more than a year before he heard about Wagner’s contest and decided to try something similar.
You could also enter a contest to win a 40-acre property near Sherwood Park, Alta. This one has a $250 entry fee. The contest was to close on Aug. 31, 2019 but as of Aug. 28, only 61 of the 2,500 required entries had been submitted. That contest is likely to get a six-month extension.
Or, you could go for a 4,400-square-foot mansion in Calgary. The website for this contest outlines how the owners, Teresa and Bill, designed and built their dream home in the Mount Royal neighbourhood in 2014. But the home was constructed “against an increasingly dark and ominous backdrop in the Province of Alberta,” says the contest website. “For Teresa and Bill, the ink on the construction bill of $2.9 million had barely dried as the City of Calgary issued their property value assessment of $1.6 million. The stage had been set for a financially devastating crisis. With no possible sale at cost recover levels and poor prospects for waiting out the market, this couple is struggling with a mountain of debt.”
The website says the contest “was born from the need to think outside the box.”
It requires a minimum of 100,000 people to join the contest by sending $35 along with a great photo of their pet. The owners hope to be able to grant three runner-up prizes of $50,000 as well as give $100,000 to share among three Canadian charities.
Even if a contest is successful, it could create tax issues for the homeowners, says Carolyn Hogan of Miller Thomson LLP in Calgary. Generally, when a person sells their principal residence in Canada, it’s tax-free. But can entry fees for a contest be considered proceeds of the disposition of a property? Hogan says that since most of those fees come from people who will not receive anything in exchange for the money, those fees may not be considered part of the sale price of the property.
In the case of Alla Wagner, for example, if the entry fees were determined to be taxable business income and Wagner had reached the goal of 60,000 entries or $1.5 million, she might have been liable for income tax of up to $720,000 not including expenses, says Hogan.
If the winner of the house was unable to live in the property and claim it as their principal residence, and then sold it, they would incur a taxable capital gain on the entire value of the property, not on the increase in value since they acquired it, Hogan writes.
Getting enough entries to make the contests viable seems to be the biggest hurdle to these contests. In the U.S., which has seen many of these contests over the years, the Washington State Gambling Commission says they “may sound like a neat idea, but we don’t know of any houses that have actually been given away in Washington. Usually there aren’t enough contestants to pay for the house, so the contest is cancelled or postponed to allow for more entries.”
It says if you are thinking of entering such a contest, make sure the person running it actually owns the property and that the location and characteristics of the property are being properly represented. If the contest is cancelled, find out how much of the entry fee will be refunded.