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Principal Issues: [TaxInterpretations translation] What is the tax treatment of amounts received by laid-off workers from a training fund financed entirely by the employer?
Position: Question of fact. Based on the facts submitted, we believe that the training fund represents an employee benefit plan. Alternatively, the amounts received should be included in computing the income of workers pursuant to paragraph 6(1)(a).
Reasons: Income Tax Act.
XXXXXXXXXX 2009-030874
November 2, 2009
Dear Sirs,
Subject: Training Fund Agreement
This is further to your letter dated January 26, 2009 in which you raised the issue of the taxation of amounts received by workers of the XXXXXXXXXX (the "Corporation") from a training fund, which was wholly funded by the Corporation and established pursuant to an agreement under the Collective Agreement between the Corporation and the XXXXXXXXXX (the "Union").
Unless otherwise indicated, all statutory references herein are to the provisions of the Income Tax Act (the "Act").
In particular, the agreement between the Corporation and the Union (the "Agreement") provided for the establishment of a training fund for the XXXXXXXXXX employees. This training fund was established under Part III of the Quebec Companies Act and is a non-profit corporation intended to promote the return to school of employees following their layoff in order to facilitate their integration into the labour market.
Under the terms of the Agreement, the Corporation must pay an amount for each hour worked by each worker into the training fund which, subsequently, during a period of work stoppage, may finance or co-finance the training of the workers as well as provide them with income while they are in school.
The training fund offers two types of financial support. On the one hand, it can finance the training taken by laid-off workers, whether for high school courses, courses leading to a diploma of vocational studies, courses leading to a certification of college studies or courses leading to a college diploma. On the other hand, the fund provides an educational incentive payment to laid-off workers at the end of their EI eligibility period. This amount is in addition to the financial support provided by Emploi Québec under Part II of the Employment Insurance Act. The purpose of the educational incentive payment is to provide workers with an income while they are in school.
Our Comments
As stated in paragraph 22 of Information Circular 70-6R5 of May 17, 2002, it is the practice of the Canada Revenue Agency not to issue written opinions on proposed transactions otherwise than by way of advance income tax rulings. Furthermore, when it comes to determining whether a completed transaction has received appropriate tax treatment, that determination is made first by our Tax Services Offices as a result of their review of all facts and documents, which is usually performed as part of an audit engagement. However, we can offer the following general comments that we hope may be helpful to you. These comments may, however, in certain circumstances, not apply to your particular situation.
Having regard to the facts presented and the provisions governing the training fund, it is likely that the fund is an employee benefit plan ("EBP"). An EBP is an arrangement under which contributions are made by an employer to another person (the "custodian") and under which one or more payments are to be made to employees or former employees.
Arrangements that are not employee benefit plans under the definition in subsection 248(1) include the following:
(a) a registered pension fund or registered pension plan as defined in subsection 248(1);
(b) group sickness or accident insurance plans;
(c) private health services plans as defined in paragraph 110(8)(a) ;
(d) supplementary unemployment benefit plans as defined in subsection 145(1);
(e) deferred profit sharing plans as defined in subsection 147(1);
(f) group term life insurance policies as defined in subsection 248(1);
(g) employee profit sharing plans as defined in subsection 144(1);
(h) employment insurance plans of the type described in paragraph 6(1)(f);
(i) trusts that provide for vacation pay under paragraph 149(1)(y);
(j) employee trusts as defined in subsection 248(1);
(k) arrangements the sole purpose of which is to educate or train employees to improve their work or work-related skills and abilities; and
(l) a plan or fund prescribed under section 6800 of the Income Tax Regulations.
With respect to the above exclusions, we do not believe that the exclusion listed in item (k) above is applicable since the training received by the laid-off workers does not necessarily relate to their skills respecting their duties with the Corporation. Rather, it appears that the funded training was intended to enable employees to find work in a field other than that of the Corporation.
Where amounts are received by employees, paragraph 6(1)(g) provides that they must be included in computing the income from an office or employment of the employees in the year in which they are received. This conclusion applies regardless of the nature of the amounts when they were received by the EBP and whether or not they were taxed as income of the custodian. Generally, the amount to be included in computing the employee’s income will be the amount received from the EBP less the amount of employee contributions to the EBP, if any. For more information on the taxation of EBPs, see Interpretation Bulletin IT-502, Employee Benefit Plans and Employee Trusts, at http://www.cra-arc.gc.ca/E/pub/tp/it502/READ-ME.html.
Alternatively, in the event that the training fund does not constitute an EBP, it is our view that the amounts funding the training of laid-off workers as well as the educational incentive payments would constitute income from an office or employment under paragraph 6(1)(a).
We hope that you find the above comments of assistance.
Best regards,
François Bordeleau, Advocate
Manager
Business and Partnerships Section
Income Tax Rulings Directorate.
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