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: What are the tax implications and reporting requirements for a new ministry program, called the Young Adult Program provided by the Province of British Columbia?
Position: While it is a question of fact, the amounts paid by the Ministry may be social assistance and if the assistance provided is based on a means, income or needs test the amount is included in income under paragraph 56(1)(u) and a deduction is provided under paragraph 110(1)(f) of the Act and reported on a T5007 slip. If the primary purpose of the financial assistance is to allow the individual to pursue an education then it is likely a bursary and included under paragraph 56(1)(n), less the scholarship exemption provided by subsection 56(3) of the Act and reported on a T4A slip. If the financial assistance is social assistance but it is not based of a means, income or needs test then it is likely non-taxable.
Reasons: The position depends on the primary reason for the payments and whether or not the amount of the assistance provided is based on a means, income or needs test.
XXXXXXXXXX
2009-034556
N. Shea-Farrow
September 22, 2010
Dear XXXXXXXXXX :
Re: Technical Interpretation Request - Young Adult Program
We are writing in response to your fax of December 2, 2009 requesting clarification on the tax implications and reporting requirements for a new ministry program, called the Young Adult Program. The Province of British Columbia provides this service through the Ministry of Children and Family Development (the "Ministry") under the authority of the Child, Family and Community Service Act (CFCSA).
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request as set out in Information Circular IC 70-6R5 dated May 17, 2002. Where the particular transactions are completed the inquiry should be addressed to the relevant tax services office. However, we are prepared to offer the following general comments, which may be of assistance.
Facts
The following is our understanding of the facts:
According to section 12.3 of the CFCSA a director may enter into a written agreement with a person, who until the person's 19 birthday,
(a) received support services or financial assistance, or both, under section 12.2,
(b) was in the continuing custody of a director or the permanent custody of the Superintendent of Family and Child Service, or
(c) was in the guardianship of a director of adoption or of a director under section 29 (3) of the Family Relations Act.
The agreement may provide for support services or financial assistance, or both, to assist the person while
(a) enrolled in an educational or vocational training program, or
(b) taking part in a rehabilitative program.
The agreement may be renewed or, after an interval, another agreement under this section may be made, but, whether one or more agreements are made,
(a) the total of the terms of all agreements with all directors, and all renewals to all agreements, relating to the same person must not exceed 24 months, and
(b) no agreement may extend beyond the person's 24th birthday.
XXXXXXXXXX an agreement with a young adult (AYA) is intended to assist with day-to-day living expenses for a young adult engaged in the above activities to ensure their basic living and health needs are met. XXXXXXXXXX the province's Youth Educational Assistance Fund (YEAF), in conjunction with student loans, is intended to be the primary source of funding for education or training expenses, such as tuition, fees and supplies. However, where a young adult or their program is not eligible for a YEAF bursary, an AYA can assist with these costs.
XXXXXXXXXX , an individual is required to complete an application form with a written plan explaining their goals and the support that they will need to reach them. It explains that a social worker may be able to provide assistance in developing this plan. The plan requires a minimum of 60 per cent of a full-time educational or vocational program course load, or 40 per cent if you have a permanent disability; or a minimum of 15 hours a week participation in a rehabilitative program; or a combination of the above. An AYA can provide support services or financial assistance, or both while the young adult is in the program This may include living expenses for the young adult and of their dependent children, child care, tuition fees and related costs for book, supplies and uniforms if assistance is not available through theYEAF, health care premiums and support from social workers. It also states that the amount of assistance that a young adult receives will depend on their individual need. Further it explains that a contribution may be expected depending on the amount of AYA assistance required and the young adult's anticipated employment income during an AYA. A social worker will assist the young adult in determining whether a contribution is required by the young adult.
The determination of the income tax treatment of payments such as those described in your letter involves a question of fact that can only be determined after reviewing all of the relevant documentation and agreements related to the AYA program. However, based on the limited information provided to us, we are prepared to offer the following general comments, which may be of assistance.
Paragraph 56(1)(u) of the Act includes social assistance payments that are made on the basis of a means, needs, or income test and received in the year in a taxpayer's income except to the extent that such amounts are otherwise required to be included in the taxpayer's income or the income of the taxpayer's spouse or common-law partner. However, amounts included in a taxpayer's income under paragraph 56(1)(u) of the Act are offset by a matching deduction under paragraph 110(1)(f) of the Act, such that there are no accompanying income tax implications related to this income inclusion other than it may possibly affect certain income-tested programs.
The first requirement in paragraph 56(1)(u) of the Act is that the amount must be "social assistance". The term "social assistance" is not defined in the Act. Social assistance generally means aid made by a government or government agency on the basis of need.
The second requirement in paragraph 56(1)(u) of the Act is that the payment must be "made on the basis of a means, needs or income test". We consider each one of these tests to be a financial test and they are described below:
1. An "income" test which is a test based solely on the income of the applicant.
2. A "means" test, which is similar to an income test, but also take into account the assets of the applicant.
3. A "needs" test takes into account the income, assets and financial needs of the applicant.
If the financial assistance, provided by the Ministry under the AYA program is provided on the basis of need and at least one of the financial tests above is applied to the applicant, it would be social assistance for the purposes of paragraph 56(1)(u) and paragraph 110(1)(f) of the Act. The AYA program is offering financial aid and other supports to former youth in care who are interested in pursuing education, training or rehabilitative programs as part of a planned transition to adulthood. Each individual is required to complete an application form and a written plan to identify the support and assistance for basic living costs, costs and services for dependent children and program costs that the individual will need to achieve their goals. Thus, it appears that the assistance given is on the basis of need and is likely social assistance. XXXXXXXXXX a young adult's anticipated income during the AYA is taken into account to determine if a contribution by the young adult is required thus affecting the amount of the assistance that is provided to the young adult. Thus it appears that an income test is applied. While it is always a question of fact, it seems that both requirements of paragraph 56(1)(u) of the Act have been met in respect of the payments made under the AYA program.
Subsection 233(1) of the Income Tax Regulations (the "Regulations") requires every person who makes a payment described in paragraph 56(1)(u) of the Act to file an information return in prescribed form in respect of such payment. Social assistance payments are generally reported on a T5007 slip. However, subsection 233(2) of the Regulations lists certain exceptions from these reporting requirements. As described in subsection 233(2) of the Regulations the following types of payments do not have to be reported on a T5007:
A payment that
(a) is in respect of medical expenses incurred by or on behalf of the payee;
(b) is in respect of child care expenses, within the meaning assigned by paragraph 63(3)(a) [now subsection 63(3) "child care expense"] of the Act, incurred by or on behalf of the payee or a person related to the payee;
(c) is in respect of funeral expenses in respect of a person related to the payee;
(d) is in respect of legal expenses incurred by or on behalf of the payee or a person related to the payee;
(e) is in respect of job training or counselling of the payee or a person related to the payee;
(f) is paid in a particular year as a part of a series of payments, the total of which in the particular year does not exceed $500; or
(g) is not a part of a series of payments.
While a question of fact, if the financial assistance provided is social assistance that is included under paragraph 56(1)(u) of the Act, it appears that in some cases the financial assistance provided by the Ministry under the AYA program would not have to be reported on a T5007 slip because of one or more of the specific exclusions listed above. Additional information on this topic can be obtained from the T5007 Guide - Return of Benefits (T4115).
However, if the payments are for social assistance but are not provided on the basis of a income, means, or need test then they would not be included under paragraph 56(1)(u) or paragraph 110(1)(f) of the Act.
Paragraph 56(1)(n) of the Act includes in income the total of all amounts received in the year as or on account of a scholarship, fellowship or bursary. Paragraph 6 of Interpretation Bulletin IT-75R4, "Scholarships, Fellowships, Bursaries, Prizes, Research Grants and Financial Assistance", describes scholarships and bursaries as follows:
"Scholarships and bursaries are amounts paid or benefits given to students to enable them to pursue their education. Scholarships and bursaries usually apply to education at a post-secondary level or beyond, such as at a university, college, technical institute or other educational institution. However, there are circumstances where scholarships are awarded for education below the post-secondary level. Scholarships and bursaries normally assist the student in proceeding towards a degree, diploma, or other certificate of graduation. Scholarships and bursaries may apply to any field of study, including an academic discipline (such as the arts or sciences), a professional program (such as law or medicine) or a trade or skill (such as plumbing or carpentry). Normally, a student is not expected to do specific work for the payer in exchange for a scholarship or bursary. ..."
It has been a long-standing position of the Canada Revenue Agency that the definition of bursary is broad enough to encompass any form of financial assistance to enable a student to pursue his or her education.
Subsection 200(2) of the Income Tax Regulations requires that every person who makes a payment as or on account of, or who confers a benefit or allocates an amount that is for a bursary, to issue a T4A slip. Paragraph 56(1)(u) only includes social assistance payments made on the basis of certain financial tests to the extent that they are not included in income by another provision of the Act. Consequently, it is our view that if the primary purpose of the payment is to allow the young adult to pursue an education the Ministry is required to file a T4A information return and provide students with T4A slips with respect to the amounts paid on their behalf.
With respect to the tax implications for the young adults, paragraph 56(1)(n) of the Act requires the recipient of a bursary to include in income the amount of the bursary, less the scholarship exemption, as determined by subsection 56(3) of the Act. Where the bursary is received in connection with the individual's enrolment in an educational program eligible for the education tax credit, the full amount will be exempt. In any other case, the scholarship exemption will be $500. The determination as to whether a student is eligible for an education tax credit and therefore a full scholarship exemption under subparagraph 56(1)(n)(ii) of the Act is a question of fact and is discussed in detail in Interpretation Bulletin-515R2, "Education Tax Credit".
To the extent that the payments are for social assistance and no income, means or needs test is applied to the applicant to qualify and the amount is not included under 56(1)(n) before the scholarship exemption, the amount is likely a non-taxable payment for social assistance.
We trust that these comments will be of assistance.
Sharmini Ratnasingham
Manager
For Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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