22 March 2004 External T.I. 2003-0046691E5 - Youth Employment 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.

Principal Issues: Are payments made under a program funded by HRDC taxable?

Position: Yes. Direct payments to participants are taxable under subparagraph 56(1)(r)(i). Subsidies paid to participating employers, who then pay the employees, are taxable as employment income.

Reasons: Payments are earnings supplements under a government program encouraging participants to obtain or keep employment. The payments are calculated based on the provincial minimum wage.

XXXXXXXXXX 				T. Young, CA
		2003-004669
March 22, 2004

Dear XXXXXXXXXX:

Re: Supporting Communities Partnership Initiative ("SCPI")

We are writing in response to your letter of October 16, 2003, concerning the above-mentioned program. We also acknowledge our conversations (Young / XXXXXXXXXX) of December 5, 2003, and February 13, 2004. We apologize for the delay in responding to your inquiry.

Under two contracts with Human Resources Development Canada ("HRDC"), your organization operates two SCPI programs that provide employment training, life skills training, job placement training, and ongoing community support to adolescents who have left their school placements. The services provided focus on social skills and life skills development to assist the participants in obtaining employment or returning to school.

There are two phases to the program. In the first phase, the youths participate in an eight-week in-house training program where they receive training in résumé writing, interview skills, and other life skills. In this phase of the program, your organization pays the participants $7.50 per hour for 30 hours per week. The majority of the funding is provided by HRDC.

In the second phase of the program, the participants are placed with an employer. Throughout the period of employment, your organization pays the participants wages of $7.50 per hour, which is also funded by HRDC.

You have asked us if the program is subject to tax and whether your organization is responsible for deducting and remitting income tax, Canada Pension Plan ("CPP") contributions and Employment Insurance ("EI") premiums, and on which information slips the payments should be reported.

Our Comments

Paragraph 56(1)(r) of the Act includes in income various training-related amounts. In particular, subparagraph 56(1)(r)(i) includes in income "earnings supplements provided under a project sponsored by a government or government agency in Canada to encourage individuals to obtain or keep employment." Subparagraph 56(1)(r)(ii) includes in a taxpayer's income financial assistance received under Part II of the Employment Insurance Act and subparagraph 56(1)(r)(iii) includes similar financial assistance received from a government or government agency under the terms of an agreement with the Canada Employment Insurance Commission.

We have examined the contracts and related material that you submitted to us and discussed the program and funding arrangements with Anne Zacharias of HRDC (Young / Zacharias), to whom you referred us. In our view, payments under the first phase of the program constitute earnings supplements that must be included in income virtue of subparagraph 56(1)(r)(i) of the Act. Since the program is not funded under Part II of the EI Act nor is it provided under the terms of an agreement with the CEIC, subparagraphs 56(1)(r)(ii) and (iii) are not applicable.

Payments of earnings supplements described in subparagraph 56(1)(r)(i) of the Act must be reported on a T4A and income tax must be deducted and remitted. These payments are not subject to CPP contributions or EI premiums.

Finally, under the second phase of the program, since the participants are employees, their wages are subject to source deductions. Therefore, as payor, your organization must deduct income tax, CPP contributions and EI premiums. The payments must be reported on a T4 information slip.

We trust our comments will be of assistance to you.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch