14 March 2000 External T.I. 2000-0008095 - BC YOUTH AGREEMENT PROGRAM

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

DOCUMENT TYPE: Opinion

Principal Issues: Whether benefits paid by the Province of British Columbia under the Youth Agreement Program (the "Program") are taxable. This program is aimed at helping BC's most desperate youths, who often make up the "street kids" that live in our cities, and provides these youths with assistance for shelter costs (rent, hydro, telephone, etc.), support costs (food and incidental costs), education costs, and miscellaneous costs including security deposit, start-up costs (utility hook-ups, furnishings, etc.) and other one-time expenditures.

Position: In our view, the determination of whether or not payments made to youths under the Program are taxable will depend on the particular circumstances of each youth's case. However, based on our review of the Program, it is our view that most of the payments would be included as income as social assistance payments under paragraph 56(1)(u) of the Income Tax Act (the "Act") with an offsetting deduction pursuant to paragraph 110(1)(f) of the Act. However, where financial assistance is paid to a youth primarily to enable the youth to pursue an education, it may be that the amount will be taxable as a bursary under paragraph 56(1)(n) of the Act.

Reasons: The determination of the purpose of the payments is a question of fact.

XXXXXXXXXX 	J. Gibbons
		2000-000809
Attention:  XXXXXXXXXX 

March 14, 2000

Dear XXXXXXXXXX:

We are replying to your letter of February 5, 2000, in which you requested our views on the taxability of benefits paid by the Province of British Columbia under the Youth Agreement Program (the "Program").

Our understanding of the facts is as follows:

Under section 12.2 of the Child Family and Community Services Act (the "CFCSA"), your Ministry has the authority to enter into agreements with certain youths to provide them with residential, educational, financial assistance and other support services. Pursuant to section 8.1 of the Child, Family and Community Service Regulations (the "CFCSR"), in exercising the discretion under section 12.2 of the CFCSA, the director must determine whether 2 or more of the following apply:

a) the youth demonstrates addiction or severe substance abuse;

b) the youth has a significant behavioral or mental health disorder;

c) the youth is involved in the sex trade;

d) the youth does not attend school, work or an educational or therapeutic program and is living

i) with no physical shelter, or

ii) in a place that

(A) does not meet minimum health and safety standards,

(B) does not provide adequate protection from the elements, security of tenure, personal safety and affordability, or

(C) is an emergency shelter or hostel.

The youth agreement must contain a plan for independence which, pursuant to section 8.2 of the CFSCR, must contain the following:

a) a description of the behavioral commitments of the youth, the responsibility and promised acts of the youth and the director under the agreement, and any relevant timelines;

b) information necessary to support and preserve the youth's cultural, racial, linguistic and religious heritage;

c) in the case of an aboriginal youth, information necessary to support and preserve the youth's aboriginal identity;

d) a description of the youth's plan to make the transition to independence, addressing education, employment, residential arrangements and interpersonal relationships;

e) a plan outlining how the youth's performance under the agreement, including accomplishments and successes, will be monitored throughout the term of the agreement.

Included with the plan for independence is a budget and distribution schedule, which is completed by a delegated youth services worker in consultation with the youth. A budget is prepared which takes into account shelter costs (rent, hydro, telephone, etc.), support costs (food and incidental costs), education costs, and miscellaneous costs including security deposit, start-up costs (utility hook-ups, furnishings, etc.) and other one-time expenditures. (Education costs include the costs of public school supplies and public school activities, and, where applicable, post secondary education costs including tuition fees, textbook costs, and course supplies of youths attending universities, vocational schools, business schools and colleges.) A schedule of payments, based on actual costs, is made up that takes into account the youth's capacity to manage money and provides for direct payments wherever possible for rent, hydro, telephone, other utilities, tuition, etc. Based on the goals set in the plan for independence, payments for tuition, registration/course fees and books require a commitment on the part of the youth to attend and follow through to completion of the educational course or program.

Our comments

In our view, the determination of whether or not payments made to youths under the Program are taxable will depend on the particular circumstances of each youth's case. Based on our review of the Program, it is our view that most of the payments would be included in income as social assistance payments under paragraph 56(1)(u) of the Income Tax Act (the "Act") with an offsetting deduction pursuant to paragraph 110(1)(f) of the Act. However, where financial assistance is paid to a youth primarily to enable the youth to pursue an education, it may be that the amount will be taxable as a bursary under paragraph 56(1)(n) of the Act.

Paragraph 56(1)(u)

Paragraph 56(1)(u) of the Act requires the inclusion in income, a social assistance payment made on the basis of a means, needs or income test. The term "social assistance" is not defined in the Act, and therefore reference must be made to its ordinary meaning. The Oxford English Dictionary (2nd Ed.) defines "social assistance" as a system whereby the state provides financial assistance for those citizens whose income is inadequate or non-existent owing to disability, unemployment, old age, etc..

Paragraph 56(1)(n)

Paragraph 56(1)(n) of the Act requires the inclusion in income, certain scholarships, bursaries and fellowships, with an annual $500 exemption. (The 2000 Federal Budget proposed to increase the annual exemption to $3,000, beginning with the 2000 taxation year.) Since "bursary" is not a defined term in the Act, reference must be made to its ordinary meaning. In Webster's Third New International Dictionary, a "bursary" is defined as "a sum of varying amount given or granted to a needy student." In our view, the definition of "bursary" is broad enough to encompass almost any form of financial assistance paid to a student to help the student pursue his or her education. For example, this could include payments for shelter, support, books and other incidental costs, in addition to amounts paid for tuition and registration fees.

A bursary typically applies to education at the post-secondary school level or higher, but there are circumstances where bursaries can be awarded for education below the post-secondary school level. A bursary ordinarily assists the student in proceeding towards a degree, diploma, or other certificate of graduation. They may apply to academic disciplines or to trades (such as plumbing or carpentry). Normally, a student is not expected to do specific work for the payer in exchange for the bursary.

Conclusion

In conclusion, as noted above, given that the youth agreement program is aimed at helping BC's most desperate youths, who often make up the "street kids" that live in our cities, and a vocational or academic education in these circumstances is a secondary and incidental aspect, it is likely that most of the payments under the Program should be treated as social assistance payments and included in income under paragraph 56(1)(u). Thus, these amounts should be reported on a T5007. On the other hand, you should keep in mind that, if the primary purpose of the payments in a particular situation is to provide financial assistance to a student to allow the student to further his or her education, the amounts will be considered bursaries and will be included in income pursuant to paragraph 56(1)(n) (which payments are reported on a T4A).

Finally, as indicated above, paragraph 110(1)(f) of the Act provides an offsetting deduction for payments included in income under paragraph 56(1)(u). Thus, except for the fact that the income inclusion of these payments may affect certain tax credits that are based on income, these amounts are effectively received tax-free in calculating taxable income.

We trust that these comments will be of assistance.

Yours truly,

John Oulton
for Director
Business and Publications Division
Income Tax Rulings Directorate

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