26 June 2012 Internal T.I. 2012-0435301I7 - Excluded Income - Stipend

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether a stipend received by an intern to cover all living and travel expenses while working abroad is excluded as income under paragraph 6(1)(a) or 6(1)(b) or subsection 6(6) or 6(16).

Position: A question of fact, but likely yes in this particular situation.

Reasons: Subparagraph 6(1)(b)(iii) excludes the stipend because it is considered a "representation or other special allowance" and was funded by the Canadian International Development Agency under its International Youth Internship Program.

MEMORANDUM        NOTE DE SERVICE
                                                                                                   	DATE	June 26, 2012

TO     	Carmel Borkowski	FROM	Income Tax Rulings Directorate
  À       	Senior Program Analyst	                                     DE	Reorganizations Division

    	Field Support Section		Nadarajah Pulandiran

      	CPP/EI Rulings Division		xxxxxxxxxxx

Legislative Policy Directorate

	Legislative Policy and Regulatory Affairs Branch
                                                                                              
                                                                                                      	FILE	2012-043530

DOSSIER

SUBJECT: Excluded Income – Stipend

We are writing in response to your email of January 30, 2012, concerning the taxability of a stipend received by an intern during his or her internship placement outside of Canada. The stipend covers all living and travel expenses of the intern while he or she is working abroad. More specifically, you have asked for our guidance in determining whether such stipend is excluded as income under paragraph 6(1)(a) or (b) or subsection 6(6) or (16) of the Income Tax Act (the “Act”).

An allowance received by an employee for personal or living expenses is generally taxable under paragraph 6(1)(b) of the Act unless specifically excluded by one of the exceptions under that paragraph. Of particular relevance in the case at hand is subparagraph 6(1)(b)(iii) of the Act which provides an exception for "representation or other special allowances” received in respect of a period of absence from Canada by a person described in paragraph 250(1)(b), (c), (d) or (d.1) of the Act.

The terms "representation allowance" and "special allowance" are not defined in the Act, and therefore, reference must be made to their ordinary meaning. We are of the view that a "representation allowance" for the purposes of subparagraph 6(1)(b)(iii) of the Act, is an allowance paid to a worker having to work outside of Canada and is intended to lessen the inconveniences arising out of having to move outside of Canada, being subject to different living conditions and, where applicable, having to face a higher cost of living. Amounts that would generally qualify as "special allowances" are those where an employee is transferred or assigned outside of Canada and, as a result, would incur additional expenses. They are allowances designed to compensate, not reimburse, a loss or an additional expense arising out of the employment outside of Canada. The employer would provide for the payment of such an allowance to meet, in whole or in part, the additional cost of the employee's expenses in respect of accommodation, food, travel, etc.

A person is deemed to have been resident in Canada throughout a taxation year under paragraph 250(1)(d) of the Act if he or she performed services, at any time in the year, in a country other than Canada under a prescribed international program of the Government of Canada and was resident in Canada at any time in the 3 month period preceding the day on which those services commenced. For purposes of paragraph 250(1)(d) of the Act, a prescribed international program of the Government of Canada is set out in section 3400 of the Income Tax Regulations. According to section 3400 of the Regulations, a prescribed international development assistance program of the Government of Canada is an international development assistance program that is financed with funds (other than loan assistance funds) provided under External Affairs Vote 30a, Appropriation Act No. 3, 1977-78, or another vote providing for such financing. We are of the view that any international development assistance program that receives funding (other than loan assistance funds) through the Canadian International Development Agency (“CIDA”) is a prescribed international development assistance program of the Government of Canada.

In the present case, the payer of the stipend is a Canadian partner organization that is funded by the CIDA under the Government of Canada’s Youth Employment Strategy. Hence, we are of the view that the stipend will be considered a “representation or other special allowance” for the purposes of subparagraph 6(1)(b)(iii) of the Act provided the intern was resident in Canada at any time in the three month period preceding the day on which his or her services commenced outside of Canada. Therefore the stipend would be excluded as income under paragraph 6(1)(b) of the Act by virtue of subparagraph 6(1)(b)(iii) of the Act.

For your information, unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency’s electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer.

Yours truly,

Nerill Thomas-Wilkinson
Manager, Employment Income Section
for Director
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch