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 amounts received by individuals with disabilities under the Program, for communication, hearing and assistive tools, special assessments paid to third parties, payments relating to ergonomic equipment (such as special keyboards and chairs), and assistive technical training supports (such as speech recognition software) taxable to the recipient?
Position: Question of fact
Reasons: Where the funding is provided through a program that is established under the Canada-XXXXXXXXXX Labour Market Development Agreement, the amounts appear to meet the criteria of subparagraph 56(1)(r)(iii) and would be included in income under that provision. Where the funding is provided from other programs, the amounts would likely be considered social assistance under paragraph 56(1)(u) of the Act, but is not included in income if the assistance falls under one of the exemptions found in Regulation 233(2)
Eric Wirag, CPA, CMA
July 17, 2015
We are replying to your letter of November 26, 2013, in which you asked whether financial assistance received by clients with disabilities for additional financial assistance under the Employment Program XXXXXXXXXX (the "Program") would be included in income under paragraph 56(1)(u) of the Income Tax Act (the "Act"). We also acknowledge our telephone conversation of November 4, 2014, between members of the Income Tax Rulings Directorate, the XXXXXXXXXX and the XXXXXXXXXX.
It is our understanding that the Program supports clients in achieving sustainable employment through a variety of measures, such as employment counselling, services, and financial supports. You state in your letter that clients meet eligibility for financial assistance through the Program based on a "means, needs and income test." The Program is administered through various delivery organizations throughout the province, and the financial assistance is provided through these delivery organizations.
Clients of the Program with disabilities can receive financial assistance under the various programs such as the tuition and training program, and the wage subsidy program. In addition, the delivery organization will provide additional financial assistance to eligible clients with disabilities for communication, hearing and assistive tools, specialized assessments, assistive technical training supports and payments relating to ergonomics. An eligible client may receive amounts directly from the delivery organization or amounts may be paid to a third party for the benefit of the client. The amounts paid as financial assistance for these additional support amounts is the focus of your request.
This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R6, Advance Income Tax Rulings and Technical Interpretations.
You have explained that the intention of the Program is to replace the employment programs and services funded under Part II of the Employment Insurance Act (the "EI Act") and the employment programs targeting XXXXXXXXXX recipients. Additionally, the Program must meet all of the applicable legislative and regulatory requirements listed in XXXXXXXXXX of the Program Policy Manual, of which you provided an excerpt. The list of applicable legislative and regulatory requirements includes section 63 of the EI Act, the Canada-XXXXXXXXXX Labour Market Development Agreement ("LMDA"), the Canada-XXXXXXXXXX Labour Market Agreement for Persons with Disabilities and other legislative and regulatory requirements and agreements.
However, you also state in your letter that the program is not similar to a program established under Part II of the EI Act, which includes section 63 of that Act. Therefore, as it is unclear to us exactly how each program under the Employment Program XXXXXXXXXX was established, and which of the legislative and regulatory requirements are applicable to each program or type of financial assistance, we are providing the following general comments to assist you.
Paragraph 56(1)(r) of the Act
Paragraph 56(1)(r) of the Act requires that certain benefits and training-related amounts received by an individual in the year are to be added in computing income. Financial assistance paid to an individual or paid to a third party for the benefit of an individual is included in income under subparagraph 56(1)(r)(iii) of the Act if the financial assistance is provided under a program that meets all of the following conditions.
The program is:
(i) established by a government or government agency in Canada or by an organization,
(ii) similar to a program established under Part II of the EI Act, and
(iii) the subject of an agreement between the government, government agency or organization and the Canada Employment Insurance Commission because of section 63 of the EI Act.
The preamble to the LMDA states that the agreement is established between the XXXXXXXXXX and the Government of Canada, as represented by the Minister of Human Resources and Skills Development and the Canada Employment Insurance Commission. It also states that the Government of Canada "is authorized under section 63 of the EI Act to enter into the agreement with XXXXXXXXXX to provide for payment of contributions towards the costs and benefits provided by XXXXXXXXXX that are similar to employment benefits and support measures established under Part II of that Act and consistent with the purpose and guidelines of Part II of that Act..."
Therefore, based on the noted criteria in the preamble of the LMDA, it is our view that financial assistance provided under a program that is established by a government or organization and that is the subject of the LMDA meets the requirements of subparagraph 56(1)(r)(iii) of the Act, and the amounts would be included in the income of the client for the year under that provision. Generally, this would apply to financial assistance paid directly to the client or paid to a third party for the benefit of the client. It is also our view that the provisions of paragraph 56(1)(r) of the Act would apply before other provisions of the Act, such as paragraphs 56(1)(n) and 56(1)(u).
As noted in paragraph 3.80 of Income Tax Folio S1-F2-C3: Scholarships, Research Grants and Other Education Assistance, paragraph 56(1)(r) of the Act can apply to benefit amounts regardless of whether the benefits or payments are provided by the Canadian federal government, another level of Canadian government or an organization under a devolution agreement.
Paragraph 56(1)(u) of the Act
Paragraph 56(1)(u) of the Act includes in a taxpayer's income, social assistance payments that are made on the basis of a means, needs, or income test and received in the year 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 but generally means aid provided by a government or government agency, although it can be provided by other organizations, 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." Each one of the tests is considered to be a financial test and they are described as:
- An "income test" is a test based solely on the income of the applicant;
- A "means test" is similar to an income test, but also takes into account the assets of the applicant; and
- A "needs test" takes into account the income, assets, and financial needs of the applicant.
While a question of fact, it appears that the additional financial assistance provided to clients with disabilities for the various tools and assessments would be social assistance for the purposes of paragraph 56(1)(u) and paragraph 110(1)(f) of the Act, where paragraph 56(1)(r) of the Act does not apply.
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, Statement of Benefits. However, subsection 233(2) of the Regulations lists certain exceptions from these reporting requirements. As described in subsection 233(2), 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, as defined in subsection 63(3) 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. Where subsection 233(2) of the Regulations excludes specific items from the reporting requirements of the T5007, it is the practice of the Canada Revenue Agency not to require excluded amounts to be included in a recipient's income, thereby not affecting the calculation of income-tested benefits.
We trust our comments will be of assistance.
Pamela Burnley, CPA, CA
Manager, Tax Credits and Ministerial Issues
Business and Employment Division
Income Tax Rulings Directorate
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