31 July 1995 Internal T.I. 9518256 - YOUTH INTERNSHIP PROGRAM

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

The tax treatment of payments made by Human Resources Development Canada to participants in the sectoral stream of the Youth Internship Program (YIP).

Position TAKEN:

For periods of classroom training when the payments are provided directly be HRD the payments would be characterized as bursaries. For periods when the participant is performing services for the host employer (on-the-job training) the payments would be characterized as income from employment.

Reasons FOR POSITION TAKEN:

The training allowances are not paid under the National Training Act but rather out of the consolidated revenue fund, therefore, 56(1)(n) has application. During on the job training the participants are paid an hourly wage rate in exchange for employment services.

					July 31, 1995

	CPP/UI Eligibility and	Headquarters
	  Systems Division	J.A. Szeszycki
	Pierre M. Paquette	(613) 957-8953

					951825

HRD - Youth Internship Program

This is in reply to your memorandum of July 11, 1995 in which you requested that we review the documentation describing one of the employment training initiatives developed by Human Resources Development Canada (HRD) and provide comments as to the tax treatment that should be accorded the payments called for thereunder.

The project described is being developed under the Youth Internship Program (YIP), a program upon which we have previously been consulted. YIP has three basic streams; school-based, community-based, and the sectoral stream. We had previously commented on the first two streams in general terms. The current project comes under the sectoral stream, more specifically, it involves the environment sector. The project targets recent high school graduates in a three year program of training.

It is our understanding of the project structure that each program year is divided into an academic term (classroom training) of 15 to 18 weeks duration and a work segment (on-the-job training) for the remaining 19 weeks of the annual session. The academic term may be completed in consecutive weeks or it may be split in a manner suitable to the circumstances.

Our understanding of the compensation arrangements is that during the academic term the participant will receive either a flat amount per week (in the Atlantic Region and Ontario) or an amount computed on an hourly rate basis (Quebec and Alberta). The amount will be paid directly by the coordinator, the Canadian Council for Human Resources in the Environment Industry (CCHREI), as a training allowance (income support). In Ontario, for example, the participant will receive $140 per week in the first year of the program for each week of the academic term, increasing to $145 and $150 in the second and third year of the program respectively.

During the work term the participant will be paid directly by the host-employer at an hourly wage rate that varies between provinces and also increases in each year of the program. In Ontario, for example, the hourly wage rate in the first and second year of the program will be $6.85 per hour, increasing to $7.30 per hour in the third year. CCHREI will subsidize the employer during the work term in respect of some of the wages paid to the participants. Based on the theory that the participant's value to the employer (and productivity) increases with the amount of training and experience gained, the amount of the subsidy decreases with each year of the program. Consequently, the percentage of the per/hour rate that is the responsibility of the host-employer increases. To the extent that CCHREI continues to subsidize the employer, a monthly cheque is issued to the host-employer.

In our review of YIP as a whole we were given to understand that none of the funding for the project is authorized specifically under the National Training Act but rather comes from the Consolidated Revenue Fund and set aside for that purpose. As a result, it is our view that amounts paid out during the academic phase of the program would be considered a bursary for tax purposes and would be subject to tax under paragraph 56(1)(n) of the Act. The amounts paid to participants by the host-employer in the on-the-job phase of the program would be considered paid in exchange for services rendered and would properly be characterized as employment income subject to tax under subsection 5(1) of the Act, regardless of the level of subsidy received by the host-employer from the CCHREI in each year.

B.W. Dath
Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch