19 December 2001 Internal T.I. 2001-0095517 - TRAINING ALLOWANCE - INDIAN ACT

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 CCRA.

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

Principal Issues: Would training allowances received by a member of a First Nation from the First Nation and his trainer during his off-reserve on-the-job training be exempt from tax under paragraph 81(1)(a) of the Act?

Position: No.

Reasons:  Unless the training is on the reserve or the training allowance is paid under a treaty or an agreement between a band and Her Majesty, training allowances are included in the recipient's income under paragraph 56(1)(n) of the Act.  It would not qualify for exemption under paragraph 81(1)(a) of the Act.
							December 19, 2001

	VANCOUVER TAX SERVICES OFFICE		HEADQUARTERS
	Stacy Hodges				Mickey Sarazin
	Client Assistance Division		957-2089

							2001-009551

Training Allowances for Status Indians

We are writing in response to your undated memorandum received by fax on July 31, 2001, requesting our views as to whether certain training allowances paid to a status Indian would be taxable or non-taxable when received.

We apologize for the delay in responding to your request. We note that, in order to ensure that Aboriginal issues are dealt with in a more timely manner, the Income Tax Rulings Directorate has established the Aboriginal Issues Section. This Section will deal primarily with interpretive issues relating to the taxation of Aboriginals.

Our understanding of the facts is that XXXXXXXXXX (the "Trainer") is located across the street from the XXXXXXXXXX (the "Reserve"). XXXXXXXXXX (the "Student") is a member of the XXXXXXXXXX (the "First Nation") and he enrolled in the XXXXXXXXXX (the "Program") at the XXXXXXXXXX (the "Institute") in XXXXXXXXXX. You indicate that the Student did not reside on the Reserve during the relevant period and the Institute was not located on the Reserve.

The Trainer and the First Nation entered into an agreement whereunder:

(a) each of them were required to pay $XXXXXXXXXX to the Institute;

(b) the Trainer agreed to provide the Student with XXXXXXXXXX months of on-the-job training commencing on XXXXXXXXXX;

(c) the First Nation agreed to monitor the Student's progress in the Program;

(d) $XXXXXXXXXX of the amounts paid to the Institute in (a) above was to be paid to the Student over the course of the XXXXXXXXXX months of on-the-job training at the rate of $XXXXXXXXXX per month; and

(e) the training allowance amounts were not wages, but were intended to cover student expenses during the on-the-job training portion of the Program.

It appears that the Student was paid $XXXXXXXXXX per month by each of the Trainer and the First Nation over the XXXXXXXXXX months of on-the-job training.

You were asked whether any of the amounts received by the Student should have been included in his income under the Income Tax Act (the "Act"). You were also asked whether your conclusions would differ if the First Nation paid all of the required amounts to the Student and the Trainer reimbursed the First Nation for its portion of the amounts paid.

Your Conclusions

You are of the view that the amounts received by the Student from the First Nation were exempt from taxes under paragraph 81(1)(a) of the Act. You have concluded that the amounts paid by the First Nation to the Student constituted personal property of an Indian situated on a reserve within the meaning of section 87 of the Indian Act. Consequently, these amounts would be exempt under paragraph 81(1)(a) of the Act.

Since the Trainer is off the Reserve, the Student resided off the Reserve and the training is provided off of the Reserve, you have concluded that the amounts paid by the Trainer were taxable when received by the Student. In other words, you are of the view that there were insufficient connecting factors to connect the amounts paid by the Trainer to the Student to the Reserve. In addition, you would not have concluded otherwise if the First Nation had made the payments on behalf of the Trainer.

Comments

The Agreement states very clearly that the training allowance amounts are not wages but are intended to cover the Student's expenses during the on-the-job training portion of the Program. We would generally require the inclusion of any training allowance under paragraph 56(1)(n) of the Act. Our position is based on the fact that paragraph 56(1)(n) of the Act requires the inclusion into income of certain scholarships, bursaries and fellowships, net of a $500 exemption. A bursary is defined in Webster's Third New International Dictionary as "a sum or varying amount given or granted to a needy student". In our view, the definition of a bursary is broad enough to encompass almost any form of financial assistance paid to a student to enable the student to pursue his or her education, including a payment based on the means or needs of the student.

When training benefits are received by status Indians, paragraph 81(1)(a) of the Act and section 87 of the Indian Act may provide a tax exemption if the income is considered an Indian's personal property situated on a reserve. The Courts have determined that, for the purposes of this exemption, income is personal property. Consequently, what must be determined is whether the training allowance, in the above case, was situated on the Reserve.

In our view, training benefits received by status Indians will generally not be connected to a reserve unless the training itself is taken on a reserve. Where the training is taken off of a reserve, the training assistance will generally not be tax exempt.

With respect to section 87 and 90 of the Indian Act, CCRA's position respecting the tax treatment of education grants, including training allowances, is based on reasoning in the case of Deanna Greyeyes v. Her Majesty the Queen, (78 DTC 6043) (F.C.T.D.). Deanna Greyeyes was a status Indian enrolled as a student at the University of Calgary, who while attending the University of Calgary received from the Department of Indian Affairs and Northern Development the sum of $2,339.50 to assist her in her post-secondary education. At all relevant times she was neither living on nor attending classes on a reserve. However, the scholarship was received by Deanna Greyeyes pursuant to an agreement and treaty between her Band and Her Majesty specifically pursuant to an agreement to assist band members in their education in compliance with the obligations of the Federal Government under Treaty No. 6. The court held that the scholarship, by virtue of subsection 90(1) of the Indian Act, was the personal property of an Indian situated on a reserve within the meaning of section 87 of the Indian Act.

Paragraph 90(1)(b) of the Indian Act provides that for purposes of section 87, personal property that was given to Indians under a treaty or agreement between a band and Her Majesty shall be deemed always to be situated on a reserve. As described in Mitchell v. Peguis Indian Band ((1990) 2 SCR 85), in paragraph 90(1)(b) of the Indian Act the words "treaty" and "agreement" take colour from each other and, in our view, an agreement would have to be similar in nature to a treaty. Consequently, our position is that agreements referred to in paragraph 90(1)(b) of the Indian Act must flow from a treaty, i.e. the agreement must implement the treaty.

It is a question of fact whether the training allowance received by the Student was received under a treaty or agreement between a band and Her Majesty and is exempt from tax under the Act, or whether it was received under some other program and is taxable under the Act. In our view, unless paragraph 90(1)(b) of the Indian Act applied in respect of the training allowance, the amounts received by the Student from the Trainer and the First Nation were generally not connected to a reserve and, consequently, the amounts were not exempt from tax by virtue of the Indian Act. Therefore, the amounts were taxable under paragraph 56(1)(n) of the Act.

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Canada Customs and Revenue Agency's mainframe computer. 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. Should your client request a copy of this memorandum, they can be provided with the LAD version, or they may request a copy severed using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Mrs. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.

Mickey Sarazin, CA
Manager
Aboriginal Affairs Section
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch