19 January 2004 Ministerial Correspondence 2003-0053541M4 - Taxation of Indian EI training allowance

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: Are training allowance amounts paid to a status Indian under an EI program taxable?

Position: Probably not in this case.

Reasons: It appears that the training in this case is done on reserve, which would create a sufficient connection to the reserve to make the amount tax-exempt.

Signed on January 19, 2004

XXXXXXXXXX

Dear XXXXXXXXXX:

The Honourable Stan Keyes, Minister of National Revenue, has asked me to reply to your letter addressed to the Honourable Jane Stewart, former Minister of Human Resources Development, concerning the taxation of training benefits you are receiving under an employment insurance job creation program. Ms. Stewart forwarded a copy of your letter to Minister Keyes' predecessor, the Honourable Elinor Caplan, on November 21, 2003.

I understand that you are a status Indian and that all of your training and work connected with the program is performed on the XXXXXXXXXX Reserve.

When training benefits are received by status Indians, paragraph 81(1)(a) of the Income Tax 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 purposes of this exemption, income is personal property. Consequently, what must be determined is whether the particular income of a status Indian is in fact situated on a reserve.

In determining whether income is situated on a reserve, we follow the approach taken by the Supreme Court of Canada in Williams v. the Queen, which requires that we evaluate the various factors connecting the property to one location or another. We must then determine to what extent each connecting factor is relevant in determining whether taxing the particular kind of property in a particular manner would erode the entitlement of an Indian to personal property situated on a reserve.

Generally speaking, training benefits funded under the Employment Insurance Act will not be sufficiently connected to a reserve to be tax-exempt. However, a sufficient connection to a reserve can be said to exist and the exemption becomes available when the training is actually taken on a reserve.

Should it be determined that the income is not situated on a reserve, the following comments may be helpful. Various training-related amounts that may be paid for the benefit of an individual are subject to tax. Specifically, paragraph 56(1)(r) of the Income Tax Act includes in a taxpayer's income earnings supplements provided under a government-sponsored employment project as well as financial assistance received under Part II of the Employment Insurance Act or through the Canada Employment Insurance Commission.

Under paragraph 110(1)(g) of the Income Tax Act, a taxpayer is entitled to an offsetting deduction for the financial assistance described above that is included in income, is not eligible for the tuition tax credit and is not otherwise deductible by the taxpayer. There is no offsetting deduction available for earnings supplements provided under a government-sponsored employment project.

I trust the information I have provided will be of assistance.

		Yours sincerely,

		Bill McCloskey
		Assistant Commissioner
		Policy and Legislation Branch
Renée Shields
948-5273
2003-005354
December 19, 2003