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:
Taxation of the following payments made to disabled individuals from HRDC's Opportunities Fund.
a) Tuition
b) Wage Subsidies
c) Assistance to self-employed individuals
d) Other payments
Position:
a) taxable under 56(1)(n)
b) taxable as employment income under section 5
c) taxable under 12(1)(x)
d) non taxable
Reasons:
a) position taken in similar files
b) wage subsidies made to employer, thus all payments from employer to employee paid as wages would constitute employment income
c) payments made to individuals to assist them in starting their own businesses would fall within the provisions of paragraph 12(1)(x) of the Act
d) currently no provision to catch such amounts
January 26, 1999
Kim Dao HEADQUARTERS
Vancouver Tax Services Office Karen Power, CA
(613) 957-8953
7-981692
HRDC’s Opportunity Fund for People with Disabilities
Your request concerning the taxation of payments made under the Opportunities Fund, has been forwarded to our Division for reply, by the Individual Programs Section of Client Services Directorate. We apologize for the delay in replying.
Our understanding of the facts is as follows:
In the February 1997 Budget, the Government announced that it would create a new Opportunities Fund of $30 million a year over three years, operating in partnership with non-governmental organizations and the private sector to provide assistance for Canadians with disabilities to prepare for, find and keep jobs. There is no legislative base for the Opportunities Fund. This program is funded through the Consolidated Revenue Fund.
The purpose of the Opportunities Fund is to help individuals with disabilities gain access to either paid employment or self-employment. The Opportunities Fund for persons with disabilities may provide financial assistance in support of activities and innovative approaches that contribute to the attainment of the program objective. These activities include, but are not limited to, the following:
a) encourage employers to hire individuals who they would not normally hire by providing wage subsidies;
b) encourage individuals to accept employment by offering them financial incentives;
c) help individuals to create jobs for themselves by starting a business;
d) provide individuals with opportunities through which they can gain work experience which leads to on-going employment;
e) help individuals to obtain skills, ranging from basic to advanced skills, through courses purchased on their behalf or through direct assistance to individuals;
f) assist persons with disabilities to access employment or employment services by providing personal supports; and
g) provide special services and intervention tailored to meet the needs of persons with disabilities in order to facilitate their integration into employment.
To be eligible for participation in the initiative, a client must self-identify as having a disability, be legally entitled to work in Canada, be in need of assistance to prepare for, find or become employed or self-employed, be ineligible for Employment Benefits under the Employment Insurance Act, and commit to an employment action plan. We have been advised by Bob Thomas, an HRDC official, that Opportunities Fund clients do not have to meet a means, needs or income test to benefit from this initiative.
You have specifically requested whether payments made pursuant to the Opportunities Fund are taxable, pensionable, and/or insurable, and are subject to withholding requirements.
Items a) & b) - Wage Subsidies & Incentives
It is our understanding that, in most cases, wage subsidies are paid directly to the employer. The employer, in turn, pays these amounts, and in some cases additional amounts, as wages to the employee. Generally, all amounts received by an individual from their employer as wages would be considered employment income taxable under section 5 of the Act.
In a situation where the individual, himself, receives the wage subsidy from the Opportunities Fund or receives a financial incentive to obtain or accept employment, it will be a question of fact as to whether these amounts are taxable pursuant to subparagraph 56(1)(r)(i) of the Act. Subparagraph 56(1)(r)(i) of the Act provides for the inclusion in income of amounts received by a taxpayer in the year as earnings supplements provided under a project sponsored by a government or government agency in Canada to encourage individuals to obtain or keep employment. Whether this paragraph applies, depends on whether the Opportunities Funds is considered a project sponsored by the Government and on whether the financial incentive can be considered an earnings supplement.
Income tax is required to be withheld from amounts taxable under paragraph 56(1)(r) of the Act, and these amounts should be reported on a T4A Summary and related T4A Supplementaries.
Item c) - Assistance Provided to Help Start Self-Employment Businesses
Paragraph 12(1)(x) of the Act provides that certain inducements, reimbursements, contributions, allowances, grants, and assistance received by a taxpayer in the course of earning income from a business or property are required to be included in income. In particular, subparagraphs 12(1)(x)(ii) through (iv) would bring into income amounts received by a taxpayer from a government that
“... can reasonably be considered to have been received
(iii) as an inducement, whether as a grant, subsidy, forgivable loan, deduction from tax, allowance or any other form of inducement, or
(iv) as a refund, reimbursement, contribution or allowance or as assistance, whether as a grant, subsidy, forgivable loan, deduction from tax, allowance or any other form of assistance, in respect of
(A) an amount included in, or deducted as, the cost of property, or
(B) an outlay or expense”.
Based on our understanding of the benefits paid from the Opportunities Fund, payments made to individuals to assist them in starting their own businesses would fall within the provisions of paragraph 12(1)(x) of the Act and any amount received would be included in income in the year it is received unless one of the exclusions in subparagraphs 12(1)(x)(v) through (viii) applies.
Paragraph 56(1)(n) of the Income Tax Act (the “Act”) requires the inclusion into income of certain scholarships, bursaries and fellowships, with a $500 exemption. A bursary is defined in Webster's Third New International Dictionary as "a sum or varying amount given or granted to a needy student." In our view, the definition of a bursary is broad enough to encompass almost any form of financial assistance paid to a student to enable the student to pursue his or her education, including a payment based on the means or needs of the student. This can include the value of ancillary assistance such as travel assistance, lodging, books or equipment, dependant care and so on.
A bursary usually applies to education at the post-secondary school level or higher but there are circumstances where bursaries can be awarded for education below the post-secondary school level. Scholarships and bursaries ordinarily assist the student in proceeding towards a degree, diploma, or other certificate of graduation. They may apply to academic disciplines or to trades (such as plumbing or carpentry). Normally, a student is not expected to do specific work for the payer in exchange for a scholarship or bursary.
It will be a question of fact to be determined based on a review of all surrounding circumstances as to whether a particular individual has received a scholarship or bursary that is to be included in the individual's income under paragraph 56(1)(n) of the Act. However, based on our understanding of the Opportunities Fund, since the primary purpose of the payment of course costs appears to be to provide financial assistance to students in need to further their education, the value of the benefit the student receives will be considered to be a bursary.
The value of the benefit to be included in the student's income would be the fair market value of the applicable course or program as is determined by reference to the rates regularly charged to the public for enrollment in the applicable course or program. In addition, if a scholarship or bursary program provides allowances or reimbursements to pay for specific educational costs, such as those for lodging, personal travel, tools, books or equipment, those amounts are generally also included in income under paragraph 56(1)(n) of the Act. Paragraph 56(1)(n) of the Act can also apply to the value of benefits in kind, such as free accommodation or equipment.
A person who pays an amount as a scholarship or bursary is required to report that amount on a T4-T4A Summary and related T4A Supplementaries. Income tax, employment insurance contributions, and Canada pension plan contributions are not required to be withheld from such amounts.
Under subparagraph 118.5(1)(a)(iii.1) of the Act, an individual may be prevented from claiming a tuition tax credit for tuition fees in respect of which the individual was entitled to receive a reimbursement or any form of assistance under a program of Her Majesty in right of Canada or a province designed to facilitate the entry or re-entry of workers into the labour force. However, this is not the case if the reimbursement or assistance is included in the individual's income, as in this situation.
As regards the issuance of receipts when the tuition fees are paid on behalf of a student, Form T2200 should be issued to students who are enrolled in a qualifying program, whether or not it is actually the student who paid the tuition.
Other Payments Listed
As funding for the Opportunities Fund is provided by the Consolidated Revenue Fund, not the EI Act, the other benefit payments cannot be taxed under subparagraphs 56(1)(a)(iv), 56(1)(r)(ii) or 56(1)(r)(iii). Furthermore, since the recipients of these benefits do not have to meet a means, needs or income test, the payments do not meet the requirements of paragraph 56(1)(u) of the Act and, therefore, would not be taxable as social assistance.
In our view, payments made to individuals from the Opportunities Fund, other than those specifically mentioned above, need not be included in computing income
Roberta Albert, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
cc. J. Pembroke, A. Director
Processing Division
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