26 July 2010 External T.I. 2010-0372651E5 - AJCTC

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: Can the aggregate claim for the AJCTC, in respect of wages payable under an eligible apprentice's apprenticeship contract, vary in circumstances where differing payors had different taxation year ends?

Position: Yes. Because the ITC is partly dependent upon amounts payable to an apprentice during the apprentices' first 24 months, the ITC in respect of a particular year may, and likely will, differ due to differences in the payor's taxation year-end. Because the AJCTC is capped only in respect of a particular year, and not in respect of an aggregate claim, it is possible that the aggregate claim might vary.

Reasons: The legislation.

XXXXXXXXXX 					2010-037265
						James Atkinson CGA
						(519) 457-4832
July 26, 2010

Dear XXXXXXXXXX :

Re: Apprenticeship Job Creation Tax Credit

This is in response to your email dated June 29, 2010 concerning the Apprenticeship Job Creation Tax Credit ("AJCTC") under subsection 127(5) of the Income Tax Act (the "Act"). Your question concerns whether or not the aggregate claim for the AJCTC which may be made by an employer, in respect of an eligible apprentice, might vary in circumstances involving employers having differing taxation year ends.

You have cited two examples, each of which involves an apprentice who commenced employment July 1st for a yearly salary of $36,000 ($3,000 per month) and who was employed for a period of 24 months. Your understanding is that the AJCTC provides for an annual non-refundable tax credit equal to 10% of the eligible salaries and wages payable (during the first 24 months of employment) to eligible apprentices in respect of employment in the taxation year and after May 1, 2006, capped at $2,000 per year for each eligible apprentice.

In example A, the fiscal year and taxation year of the employer end June 30. Accordingly, the wages payable in respect of the apprentice, and attributable to the first 24 months of the apprentices' employment, is $36,000 in each of the employer's first and second taxation years. In each of the employer's first and second taxation years, encompassing the first 24 months of the apprentices' employment, you conclude that the employer is otherwise entitled to a $2,000 AJCTC, constituting the lower of $2,000 and $3,600 (10% of the wages payable in respect of the year), resulting in an aggregate claim of $4,000 for the two taxation years.

In example B, the fiscal year and taxation year of the employer end December 30. Accordingly, the wages payable in respect of the apprentice, and attributable to the first 24 months of the apprentices' employment, is $18,000 in the employer's first taxation year, $36,000 in the second taxation year, and $18,000 in the third taxation year. In such circumstances, you conclude that the employer is otherwise entitled to a $1,800 AJCTC in respect of the first taxation year (i.e., the lower of $2,000 and $1,800 [10% of the $18,000 wages payable in respect of the year]), a $2,000 AJCTC in respect of the second taxation year (i.e., the lower of $2,000 and $3,600 [10% of the $36,000 wages payable in respect of the year]) ; and, a $1,800 AJCTC in respect of the third taxation year (i.e., the same calculation as the first taxation year), for an aggregate claim of $5,600.

You question whether your interpretation is correct as it would appear, based upon your calculations, that there is a difference in the aggregate claim available in respect of the AJCTC merely because of the difference in employer taxation year ends.

Our Comments

Subsection 127(5) of the Act provides for the deduction of certain investment tax credits, including the AJCTC, from a taxpayer's Part I tax otherwise payable.

The expression "apprenticeship expenditure" is defined in subsection 127(9) of the Act as follows:

"apprenticeship expenditure" of a taxpayer for a taxation year in respect of an eligible apprentice is the lesser of:

(a) $2,000, and

(b) 10% of the eligible salary and wages payable by the taxpayer in the taxation year to the eligible apprentice in respect of the eligible apprentice's employment, in the taxation year and on or after May 2, 2006, by the taxpayer in a business carried on in Canada by the taxpayer in the taxation year;"

The definition of "apprenticeship expenditure" caps the AJCTC available in respect of an eligible apprentice for any particular taxation year at $2,000.

Whether or not a taxpayer has an "apprenticeship expenditure" in any particular taxation year is determined with reference to the expression "eligible salary and wages," providing that the taxpayer employs an "eligible apprentice" to whom such eligible salary and wages are payable.

The expression "eligible salary and wages," as defined in subsection 127(9), means salary and wages payable by a taxpayer to an eligible apprentice in respect of the first 24 months of the apprenticeship contract (excluding remuneration that is based on profits, bonuses, amounts described in section 6 or 7 of the Act, and amounts deemed to be incurred by subsection 78(4) of the Act).

Where the apprentice's contract straddles the taxation year end of the employing taxpayer, a taxpayer would normally have more than two taxation years included during the 24-month period when eligible salary and wages are payable by that taxpayer to the eligible apprentice. This is the situation arising in your example B, described above. Where such a situation occurs, it is possible that a taxpayer, employing an eligible apprentice under similar circumstances, may be entitled to a cumulative AJCTC that is more than $4,000.

We trust that these comments will be of assistance.

Yours truly,

S. Parnanzone
Manager
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch