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: Does paragraph 56(1)(r) of the Act apply to financial assistance received under a wage subsidy program for other support amounts such as living supports, dependent care, transportation, etc.
Position: It is a 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 and are earning supplements under a project sponsored by a government in Canada to encourage individuals to obtain or keep employment, the amounts would be included in income under 56(1)(r)(i). Otherwise, the amounts could be considered social assistance and included in income under 56(1)(u).
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 under the wage subsidy program of the Employment Program XXXXXXXXXX (the "Program") would be included in income under paragraph 56(1)(r) 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.
Under the wage subsidy program, the delivery organization will provide wage subsidies to employers to assist with wage costs of hiring barriered clients. The clients then receive wages directly from their employer. In addition, you state that clients may also be eligible to receive additional amounts paid directly from the delivery organization or paid to a third party for the benefit of the client, for living supports, dependent care, transportation, essential work supplies, personal grooming, food, and certifications and licenses.
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 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"), and other legislative and regulatory requirements and agreements. However, 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. Therefore, we are providing the following general comments to assist you.
As stated in your letter, under the wage subsidy program, amounts are paid directly to employers to help with the wage cost of hiring barriered clients. Generally, where employment and vocational supports are paid to an employer, who subsequently pays the amounts as remuneration to an individual, the amounts received by the individual are considered income from employment for the individual, pursuant to subsection 5(1) of the Act.
In addition to wages received directly from an employer, clients of the wage subsidy program may be eligible to receive other support payments from the delivery organization, either directly or paid to a third party. 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 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 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 an agreement with XXXXXXXXXX to provide for payment of contributions towards the costs of benefits and measures provided by XXXXXXXXXX that are similar to employment benefits and support measures under Part II of the EI 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. This would apply to financial assistance for living supports, dependent care, transportation, essential work supplies, personal grooming, food, certifications and licenses that are paid directly to the client or paid to a third party for the benefit of the client.
Alternatively, amounts paid as earnings supplements are generally taxable under subparagraph 56(1)(r)(i) of the Act when they are provided under a project sponsored by a government or government agency in Canada to encourage individuals to obtain or keep employment. It is a question of fact whether the amounts that you have described are considered to be earnings supplements. Generally, the purpose of an earnings supplement is to increase for temporary periods, the income that an individual receives. This could include an amount, other than an amount that would be considered employment income, that is paid to an individual or paid to a third party for the benefit of the individual under such a project or program that assists the individual in participating in an employment-related activity.
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.
Finally, if the amounts described do not fall within the provisions of subsection 5(1) or paragraph 56(1)(r) of the Act, they could be considered social assistance payments and would be included in income under paragraph 56(1)(u) of the Act, if they meet the requirements of that provision.
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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