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 income tax consequences to an individual receiving an amount under the Early Childhood Worker Grant Program?
Position: See response.
Reasons: See response.
XXXXXXXXXX
2014-055592
March 31, 2015
Dear XXXXXXXXXX:
Re: Early childhood worker grant program
We are writing in response to your letter dated November 13, 2014, wherein you inquired about the income tax implications under the Income Tax Act (the "Act") of payments under the Government of XXXXXXXXXX Early Childhood Worker ("ECW") XXXXXXXXXX Program (the "Program").
Background
The Government of XXXXXXXXXX wants to increase the number of qualified early childhood development professionals in licensed daycare programs. Under the proposed Program, the Department will pay an amount to increase the earning potential in the ECW profession. To be eligible for the Program the following requirements must be met:
- The ECW must be a permanent employee of a centre-based daycare program (not providing child care in a private residence) that has a current XXXXXXXXXX Child Day Care Licence; and
- As a primary responsibility, the ECW must provide direct child care or be a program supervisor providing on-site supervision of the daily operation of the licensed child care program.
It is our understanding that the purposes of the payments under the proposed Program include:
- increasing the number of qualified early childhood development professionals in licensed daycare programs;
- providing financial support to ECW's who work in licensed centre daycare facilities; and
- increasing the earning potential in the profession.
Payments under the Program will be based on the hours worked per week and the education category under which the ECW falls. Application for the Program is a two-step process. The first step is the completion by the ECW of an initial "XXXXXXXXXX Application Form" that collects the information necessary to determine eligibility and set up payment information. The second step is the completion of a "XXXXXXXXXX" that verifies the eligibility during the previous quarter.
You have asked us to address the income tax consequences to the ECW for payments received under the Program.
Our comments on the Program are based on the information that you provided in your request, which have been summarized above. We have also assumed that no payments will be made to self-employed individuals under the Program.
The relevant types of income that we have considered are employment income, scholarship or bursary income and government-sponsored earning supplement.
Employment income
Subsection 5(1) of the Act includes salary, wages and other remuneration in a taxpayer's employment income. Paragraph 6(1)(a) of the Act includes in income the value of most benefits received or enjoyed by a taxpayer in the year in respect of, in the course of, or by virtue of an office or employment.
It is well established by the courts that the phrase "in respect of, in the course of, or by virtue of an office or employment" means that there need only be a small connection between a benefit and the employment in order to trigger the operation of paragraph 6(1)(a) of the Act.
To be eligible for the Program, the ECW must be a permanent employee of a centre-based day care program that has a current XXXXXXXXXX Child Day Care Licence. Therefore, paragraph 6(1)(a) of the Act applies to the amount received under the Program as the amount is received in respect of, in the course of, or by virtue of the ECW's employment
Scholarship or bursary income
Paragraph 56(1)(n) of the Act generally includes in income all amounts on account of a scholarship, fellowship, bursary or prize for achievement in a field of endeavour ordinarily carried on by the taxpayer. Paragraph 56(1)(n) of the Act does not include amounts received in the course of business, or amounts received in respect of, in the course of, or by virtue of, an office or employment.
As the amount paid under the Program is in respect of, in the course of, or by virtue of the ECW's employment, paragraph 56(1)(n) of the Act would not apply. Furthermore, paragraph 56(1)(n) of the Act would not apply as it is difficult to see how the payment of these amounts under the Program could be described as a scholarship or bursary for the purposes of paragraph 56(1)(n) of the Act as the amounts are not paid to enable the individual to pursue his or her education.
Subparagraph 56(1)(r)(i) of the Act includes in income amounts received as earnings supplements under government-sponsored projects to encourage individuals to obtain or keep employment.
You have stated that the purpose of the Program is to increase the number of qualified early childhood development professionals in licensed daycare programs. Essentially, the Program encourages ECWs to "obtain or keep employment".
Based on the above, it is our view that the amounts paid under the Program would be taxable under subparagraph 56(1)(r)(i) of the Act as an earnings supplement provided under a government program to encourage individuals to obtain or keep employment. Although the payment under the Program could also be included in employment income under paragraph 6(1)(a) of the Act, subparagraph 56(1)(r)(i) of the Act is the more specific provision and overrides the broader, more general provision regarding employment income. Furthermore, amounts paid under the program will be subject to income tax withholding under paragraph 153(1)(s) of the Act and according to paragraph 200(2)(c) of the Regulations, such amounts should be reported on a T4A slip.
We trust these comments will be of assistance to you.
Yours truly,
Nerill Thomas-Wilkinson, CPA, CA
Manager
Business and Employment Income Section
Business and Employment Division
Income Tax Rulings Directorate
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