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 individuals that receive training as a result of a Canada Job Grant eligible for the tuition, education and textbook tax credit?
Position: It depends on the facts.
Reasons: The individuals must meet the same requirements under the Act as any other individual. Receiving training funded by the grant may affect the ability to claim the credits.
XXXXXXXXXX
2014-055956
N. Shea-Farrow
March 4, 2015
Dear XXXXXXXXXX:
Re: Canada Job Grant
We are responding to your email dated December 2, 2014, in which you asked whether individuals who receive training funded by the new Canada Job Grant (the "Grant") are eligible to claim the tuition, education and textbook tax credits provided in the Income Tax Act (the "Act").
We understand that each province or territory must agree to certain core principles to obtain funding under the Grant and these include that the:
- employer decides which eligible beneficiaries obtain training and what type of training is required;
- employer has job available for the eligible beneficiaries at the end of the training;
- employer financially contributes to the training; and
- training is provided by an eligible third-party training institution.
Individual employers and organizations acting on behalf of employers (e.g. employer consortia, union halls, industry associations and training coordinators) in the private and not-for-profit sectors can apply for the Grant to receive funding.
Eligible beneficiaries include individuals who are:
- unemployed and seeking training to obtain a job;
- employed, but underemployed and seeking training for a better job; or
- employed, but seeking training for a better job.
For greater certainty, employers may train individuals in their existing job.
It is also our understanding that the Grant program is established under the authority of the Department of Employment and Social Development Act and that costs of the program are shared between the Government of Canada and the employer or organizations acting on behalf of employers. Generally, the Government of Canada contributes up to two thirds of the eligible training costs to a maximum of $10,000 per person and the employer (or organizations acting on behalf of employers) contributes a minimum of one third of the eligible training costs, unless the employer is a small business (of 50 employees or less). There are special rules for small business. Eligible training costs are tuition fees or fees charged by the training provider; mandatory student fees, textbooks, software and other required materials, and examination fees.
It is also our understanding that Part II (and in particular section 63) of the Employment Insurance Act does not apply to the Grant.
The tuition, education and textbook tax credits are available to individuals who qualify according to the requirements in sections 118.5 and 118.6 of the Act. The Canada Revenue Agency's (CRA) general views regarding the tuition tax credit and the education and textbook tax credits can be found in Income Tax Folios S1-F2-C2, Tuition Tax Credit and S1-F2-C1, Education and Textbook Tax Credits, which are available on the CRA website at http://www.cra-arc.gc.ca/tx/tchncl/ncmtx/fls/s1/f2/menu-eng.html.
An individual's ability to claim the credits depends on the type of training received, where it is provided, how it is paid for and other factors. Training received with funding provided by the Grant may change an individual's eligibility for these credits depending on the individual's particular circumstances. Since we have not been provided with any specific scenarios, we have outlined two scenarios to demonstrate how an individual's particular circumstances can change his or her ability to claim the credits.
Employees receiving training
It is our understanding that an employer may apply for a Grant from the government to fund the training for current employees. The Grant is approved and the employer pays a third-party trainer for the expenses of providing the training for the employee. Usually, it is necessary to initially determine whether the employer or the employee is the primary beneficiary of the training.
If the training is determined to be primarily for the benefit of the employee, a taxable benefit will be considered to have been received by the employee because of his or her employment, which is included in income as employment income. This will be the case even if the training is provided by a third party. In this situation, the tuition tax credit may be available to the employee provided all other requirements of section 118.5 of the Act are met. The employee would not be able to claim the education and textbook tax credits because the definition of a qualifying educational program, in subsection 118.6(1) of the Act, does not allow a program for which the individual receives from a person with whom the individual is dealing at arm's length (the employer, in this case) any allowance, benefit, grant or reimbursement for expenses in respect of the program.
If the training is determined to be primarily for the benefit of the employer, the employee will not be considered to have received a taxable benefit and no amount will be included in employment income in respect of the training. Generally, a determination of the primary beneficiary of the training is a question of fact that must be determined on a case-by-case basis. However, given the aim of the Grant, it is likely that the primary beneficiary is the employer.
When the training primarily benefits the employer (as generally will be the case with training from the Grant program) and therefore the amount of the benefit is not included in the employee's income, the employee will not be able to claim the tuition tax credit pursuant to subparagraph 118.5(1)(a)(iii) of the Act. This subparagraph disallows the tuition tax credit where assistance is received from the individual's employer and not included in the employee's income. The employee would also not be able to claim the education and textbook tax credits for the same reason previously mentioned.
Unemployed individuals receiving training
It is our understanding that a training coordinator may apply for a Grant from the government to train unemployed individuals. The training coordinator recruits employers and the core principles previously listed are applied. The Grant is approved and the training coordinator pays a third-party trainer for the expenses of providing the training for the unemployed individuals. The training coordinator is reimbursed by the Grant that the training coordinator has applied for from the government.
The determination of whether an individual has employment or holds an office with one of the participating employers at the time the Grant is awarded to the training coordinator, or at the time the training is received, is a question of fact. If this relationship does exist, the tax implications would be the same as noted for employees receiving training.
If an employment relationship does not exist at the time the Grant is awarded to the training coordinator or at the time that the training is received by an individual, the amount considered to be received from the training coordinator would be a bursary and included in the individual's income according to subparagraph 56(1)(n)(i) of the Act. The receipt of a bursary (as a result of the training) does not disqualify the individual from claiming the education and textbook tax credits. Additionally, the fact that the bursary is received under a program established under the authority of the Department of Employment and Social Development Act does not exclude the individual from qualifying for the education and textbook tax credits. Therefore, an unemployed individual may be eligible for the education and textbook tax credits if the requirements of section 118.6 in respect of the training are otherwise met.
If the individual is eligible to claim the education tax credit under section 118.6 of the Act in respect of the training program, the entire amount of the bursary may be exempt from tax pursuant to the scholarship exemption provided in subsection 56(3) of the Act. Otherwise, only the first $500 is excluded from income. Information on the scholarship exemption can be found in Income Tax Folio S1-F2-C3, Scholarships, Research Grants and Other Education Assistance also available on the CRA website.
Alternately, if the individual's training is basic adult education, a deduction in computing taxable income may be available under paragraph 110(1)(g) of the Act for tuition assistance received from the bursary. To be eligible for the deduction, the financial assistance must be for the payment of tuition fees and the fees must not be included in computing an amount for the tuition tax credit for any tax year. Additionally, the assistance must be received by the individual under certain programs including a program established under the authority of the Department of Employment and Social Development Act (which would include the amount of the bursary received under the Grant program). Lastly, the amount must be included in computing the income of the individual and not otherwise be deductible in computing the individual's taxable income for the year.
As mentioned, an individual must meet the requirements of section 118.5 of the Act to qualify for the tuition tax credit. Subparagraph 118.5(1)(a)(iii.1) of the Act disallows fees in respect of which the individual is or was entitled to receive a reimbursement or any form of assistance under a program of a federal or provincial government designed to facilitate entry or re-entry of workers into the labour force (which includes the bursary) where the amount is not included in computing the individual's income. This means that to the extent that any amount of the bursary in respect of those tuition fees is not included in the income of the individual (e.g., because of the scholarship exemption for the bursary in subsection 56(3) of the Act), the individual will not qualify for the tuition tax credit on those fees. In other words, if the individual otherwise qualifies for the tuition tax credit, the credit will be available only up to the tuition assistance received by the bursary under the Grant program that is included (and not deducted) in the individual's income.
Summary for the two scenarios regarding the Grant program
In the case of an employed individual receiving training, generally, because it is expected that the training will primarily benefit the employer, the cost of the training will not be included in the individual's income and the individual will not qualify for the tuition tax credit. Also, the employed individual that receives training by virtue of their employer will not be eligible for the education and textbook tax credits because they are receiving a benefit from an arms-length person (the employer).
Where an unemployed individual receives training, only the amount of the bursary received in respect of the tuition fees that is included in the individual's income (and not deducted) may be eligible for the tuition tax credit. An unemployed individual who receives a bursary may be eligible for the education and textbook tax credits, providing all requirements for the credits are met.
We hope that these comments will be of assistance to you.
Yours truly,
Pamela Burnley, CPA, CA
Tax Credits and Ministerial Issues
Business and Employment Division
Income Tax Rulings Directorate
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