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: Whether payment under the New Brunswick Nursing Program constitute a bursary or employment income under section 5.5
Position: Bursary income under 56(1)(n)
Reasons: Nursing students may apply for the bursary half way through their education program. It is a government sponsored, government funded program that is clearly designed as a bursary program. While the students have to accept an employment contract from a hospital or nursing home, it could not be said that they are getting the funds by virtue of their office or employment, even if they get the money after they start to work. Further ss. 6(3) does not apply, since it is clearly a bursary program funded by the NB government and the employer is merely acting as a conduit. This may be contrasted with employer-funded programs that are not bona fides bursary programs, but disguised signing bonuses.
March 17, 2003
Halifax Tax Services Office HEADQUARTERS
Business Window John Oulton
Angus MacIsaac 613-957-2098
2003-000491
XXXXXXXXXX (the Employer)
Nursing Bursary Program
This is in response to your correspondence dated February 25, 2003, wherein you requested our opinion on the income tax treatment of payments under the Nursing Bursary Program (the Program) sponsored by the Province of New Brunswick (NB).
Issue
The issue is whether payments made to recipients under the Program constitute employment income under subsection 5(1) of the Income Tax Act (the Act) or bursary income under paragraph 56(1)(n) of the Act.
Facts
Based on the description of the Program in the brochure enclosed with your submission, along with a sample agreement that the recipients enter into, the facts may be described as follows:
1. The Program was set up by the NB government to encourage nurse and practical nurse graduates to pursue their career in NB, particularly in hard-to-recruit areas. The NB government approved a bursary program of $165,000 for year 2002-2003, which employers could use to recruit potential candidates. To qualify for this financial assistance, candidates must enter into a return-of-service agreement, which is essentially a permanent employment contract for a specified term.
2. The Program for 2002-2003 will provide an allocation of up to $5,000 to at least 33 candidates.
3. Employers may apply for financial assistance to recover up to $5,000 for a candidate who
? Is a student enrolled in a University Nursing Program or a NB Community College Practical Nurses Program and has completed at least half of the program requirements at the time of the application;
? Has accepted an offer for permanent employment from a Regional Health Authority or a Licensed Nursing Home as a registered nurse or a licensed practical nurse;
? Has agreed to sign a return-of service agreement with the sponsoring employer for one to three years according to the amount of the bursary.
4. Nurse candidates must sign a return-of-service agreement according to the following scale: $1,500 for 1 year of permanent employment, $3,000 for 2 years of permanent employment and $5,000 for 3 years of permanent employment.
5. Practical Nurse candidates must sign a return-of-service agreement according to the following scale: $1,000 for 1 year of permanent employment, $2,000 for 2 years of permanent employment and $3,000 for 3 years of permanent employment.
6. Requests for financial assistance from employers i.e. Licensed Nursing Homes and/or Regional Health Authorities require approval from the NB Department of Health and Wellness. Once the bursary is approved, a return-of-service agreement, signed by the employer and the student, must be sent to the Department of Health and Wellness by March 15, 2003.
7. In the sample return-of-service agreement entered into by the Employer (a Regional Health Authority) and a registered nurse (the nurse), the nurse agreed to accept permanent employment as a registered nurse for 3 years.
8. The Employer undertook to request funding from the NB Department of Health and Wellness, to provide the nurse with a $5,000 bursary.
9. The payment of the bursary by the Employer is contingent on receipt of the Program funds being received by the Employer from the NB Department of Health and Wellness.
10. The nurse is not contractually bound under the return-of-service agreement unless the Employer receives and provides the funding under the Program.
11. You indicated that the employer is intending to treat the $5,000 as employment income by adding it to the salary paid in the first period when the individual becomes an employee.
12. Should the nurse fail to complete the term of employment, that percentage of the bursary equal to the percentage of the term of employment not completed, will be immediately due and payable to the NB Department of Health and Wellness by the nurse, including interest at the rate of prime plus 1% charged form the date the nurse received the bursary.
Paragraph 56(1)(n) of the Act includes in income the total of all amounts (other than amounts received by virtue of an office or employment) received in the year as or on account of a scholarship, fellowship or bursary. Paragraphs 5 to 9 of interpretation bulletin IT-75R3, Scholarships, Fellowships, Bursaries, Prizes and Research Grants, describe the CCRA's views on what has to be considered in distinguishing employment income from bursary income.
In our view, a payment made to a nurse under the Program constitutes a bursary in the year of receipt for the purposes of paragraph 56(1)(n) of the Act. Although the nurses must accept permanent employment with the employer by entering into a return-of-service agreement, the payments are not received by virtue of the office or employment but as a result of participation in the bursary Program sponsored by the NB government.
It should be noted that the Employer is not subject to withholding requirements pursuant to paragraph 153(1)(s) of the Act. However, a T4A will have to be prepared by the Employer for the amount of the bursary pursuant to the reporting requirements of paragraph 200(2)(a) of the Income Tax Regulations.
For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Customs and 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. Should your client request a copy of this memorandum, they can be provided with the electronic library version, or they may request a severed copy 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.
We trust our comments are helpful.
John Oulton, CA
Manager
Business and Individual Section
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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