27 May 1993 External T.I. 9300855 F - Training Trust Funds - General Position

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.

XXXXXXXXXX

Dear XXXXXXXXXX

RE:  Taxation of Training Trust Funds

We are replying to your letter of December 18, 1992 concerning the taxation of training trust fund administered by the XXXXXXXXXX

We apologize for the delay in responding.

As discussed by telephone, we are unable to discuss the tax affairs of a specific taxpayer without authorization from that taxpayer. We can however, offer the following general comments concerning training trust funds which may be of assistance to you.

A training trust fund will normally be taxed as an inter vivos trust unless it can be established to be a non-profit organization and hence exempt from income tax pursuant to paragraph 149(1)(l) of the Income Tax Act (the Act). The attached Interpretation Bulletin IT-496 "Non- Profit Organizations" comments on the factors to be considered in determining whether a particular organization is a non-profit organization. It is a question of fact as to whether any particular organization is operated in part for profit which can only be decided at the end of the year with reference to the actual activities of the trust. Such a determination cannot be made in advance of or during a particular year but only after the end of the year. While a non-profit organization can earn income in excess of its annual expenditures without jeopardizing its status, a concerted effort to earn funds to increase the capital of the fund may suggest that the organization is operated at least in part for profit and thus, that the organization is not a non-profit organization.

To be considered organized exclusively for the purposes described in paragraph 149(1)(l) of the Act, there must be, inter alia, a clear statement along the line of the comments in paragraph 11 of Interpretation Bulletin IT-496.

If a training trust fund cannot, or fails to, qualify as a non-profit organization, the trust is likely a taxable trust and, therefore, required to file a T3 Return within 90 days of the end of the trust's taxation year. Contributions or grants to a training trust fund from a level of government are considered to form part of the capital of the trust and hence not subject to taxation or, possibly, as income to the trust taxable under paragraph 12(1)(x) of the Act as an inducement from a government, if this paragraph is applicable given the circumstances of a particular trust. In either case, any income earned from the capital or income base of the trust is subject to taxation.

In the December 2, 1992 letter from XXXXXXXXXX which accompanied your submission, it is stated that there are special rules for training trust funds which are set up for the benefit of union members and that the inclusion of non-union members in the group eligible to receive training benefits out of the fund may result in the trust being taxable. We know of no special rules which are only applicable to a training trust fund, the benefits from which are restricted to unionized employees. There was a recent court case, L.I.U.N.A. Local 527 Members' Training Trust Fund v The Queen (92 DTC 2365), which involved a training trust fund for unionized employees; however, the issue in question was not whether or not the intended recipients were members of the union but whether the training trust fund could be considered a non-profit organization. The fact that a training trust fund provides benefits for both unionized and non-unionized employees would not, of itself, alter the taxation of the trust.

The letter also makes reference to the taxation of the recipients of the training. It is our opinion that a taxable benefit is not conferred on an employee at the time of contribution to a training trust fund by an employer, an employee association or by a level of government. It is also unlikely that an employee would receive a taxable benefit by reason of any training which the employee might receive under the sponsorship of the fund. In most cases the employer will be the primary beneficiary of any training provided by the fund. However, a definitive response can only be given on a case by case basis as course objectives, content and so forth determine whether the training primarily benefits the employer, the industry in general or the individual employee. However, where the training trust fund provides income maintenance or support to the employee receiving training, such amount may be taxed as continuing salary or as a benefit from a trust, depending on the specific terms under which the amount is being paid.

We trust our comments will be of assistance to you.

Yours truly,

P.D. Fuoco for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch