13 January 1999 Internal T.I. 9825497 - TAXATION OF TRAINING COSTS

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:

1. Is the tuition assistance provided by the Government of Manitoba taxable?

2. Are the related allowances provided by the Government taxable?

3. Can the students claim the tuition credit?

4. Can the students claim the education tax credit?

5. How should the Government be reporting these amount?

Position:

1. Yes
2. Yes
3. Yes
4. No
5. On T4A’s

Reasons:

1. & 2. Benefits funded under the EI Act will generally be taxable under 56(1)(r) of the Act.

Benefits funded under other sources may be taxable as bursaries under paragraph 56(1)(n) of the Act.

3. Because the training assistance has been included in income, the subparagraph 118.5(1)(a)(v) would not apply to deny the credit.

4. The definition of "qualifying educational program" in subsection 118.6(1) excludes a program where the student receives, from an arm's length person, any allowance, benefit, grant or reimbursement for expenses in respect of the program.

5. 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.

Income tax is not required to be withheld from amounts taxable under paragraph 56(1)(n) of the Act, although a T4A Summary and related T4A Supplementaries are required to be prepared

		January 13, 1999

	Winnipeg, TSO	HEADQUARTERS
	Revenue Collections	Karen Power, CA
(613) 957-8953
	Attention:  Dian Versluis
	                 Technical Advisor
		7-982549
	
Taxation of Training Costs

We are writing in reply to your correspondence of October 1, 1998, concerning the taxation of various training benefits/allowances provided to clients by Employment and Training Services (“ETS”) a department of the Government of Manitoba. We apologize for the delay in replying.

You have provided us with the following information:

• Apprenticeship Branch is responsible for establishing apprenticeship training requirements. ETS administers a program which funds clients for educational purposes. ETS is responsible for providing tuition and Employment Insurance (“EI”) Part II living allowances to apprentices on training.
• ETS will liaise with Human Resources Development Canada (“HRDC”) with regard to EI documentation. ETS will confirm EI eligibility of apprentices.
• HRDC is responsible for documenting apprentices for EI benefits and for responding to any problems with an EI claim.
• XXXXXXXXXX are responsible for providing the negotiated training, issuing tuition receipts and implementing whatever procedures are necessary to collect unpaid tuition from apprentices.
• In addition to tuition costs, clients are eligible to receive one or more of the following allowances depending on their personal circumstances:
• Living Away from Home Allowance - This allowance can range between $100 and $135 per week.
• Commuting Allowance - This allowance is set at $0.95 per kilometre.
• Travel Allowance - The clients will be provided with the lesser of return airfare or commuting allowance for mileage. Return bus fare is also eligible.
• Daycare Allowance - This allowance will cover incremental daycare costs while on training.
• Certain individuals may require income assistance beyond what is outlined above. These additional costs may be charged to the individual office Enhanced Feepayer (“EFP”) budgets if they cannot be funded under the EI Part II budget.
• Apprentices who are not EI eligible or who have an EI disentitlement or disqualification will receive tuition and financial support from the Apprenticeship Branch.
• All tuition and allowances are paid directly to the individual.

Our Comments

Benefits Funded Under the EI Act:

In our view, all payments/allowances received by individuals or paid directly to educational institutions in the above situation, which are funded under the EI Act, would be taxable under paragraph 56(1)(r) of the Income Tax Act (the “Act”). This paragraph was included in Bill C-28, which received Royal Assent on June 18th, 1998. This amendment is retroactive to June 30, 1996, the date of coming into force of the EI Act and Revenue Canada will apply the amendment beginning with the 1997 tax year.

Paragraph 56(1)(r) of the Act subjects to tax various training-related amounts. Specifically, this paragraph includes in a taxpayer’s income financial assistance received under Part II of the Employment Insurance Act, as well as similar financial assistance received from a government or government agency under the terms of an agreement with the Canada Employment Insurance Commission. As a result, recipients of financial assistance under Part II EI programs will be taxed regardless of whether the payments have been made directly by the federal government, a province or an organization under a devolution agreement.

Benefits Funded by the Other Sources:

It appears that amounts paid from the EFP or the Apprenticeship Branch are not made under the EI Act and, consequently, would not be taxable under paragraph 56(1)(r) of the Act. All benefits paid from these funding streams must be examined on a case by case basis. Without knowing all the circumstances under which training funds are approved or the purpose of the individual payments, we can only advise that benefits purchased with these funds will likely be taxable as bursaries. An explanation follows:

Paragraph 56(1)(n) of 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. 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 into the individual's income under paragraph 56(1)(n) of the Act.

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.

Tuition Tax Credit

Under subparagraph 118.5(1)(a)(iii.1) of the Act, an individual may be prevented from claiming the 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.

In our view, provided all of the other requirements of section 118.5 have been met, an individual receiving training assistance which is taxable under paragraph 56(1)(r) or 56(1)(n) of the Act would be entitled to claim the tuition credit.

Education Tax Credit

In order for students to claim the education credit under subsection 118.6(2) of the Act, they must be enrolled in a "qualifying education program" as defined in subsection 118.6(1) of the Act. In general, the credit is not available to a student who receives any allowance, benefit, grant or reimbursement for expenses (other than as a scholarship, fellowship or bursary, prize for achievement in a field of endeavour ordinarily carried on by the student or loan granted in accordance with the Canada Student Loans Act or Student Loans and Scholarships Act of the Province of Quebec) from a person with whom the student is dealing at arms length.

In our view, the training assistance received by the individuals described above, under Part II of the EI Act or under the EFP or Apprenticeship Branch will normally be considered allowances or benefits for the purposes of section 118.6 of the Act and the recipients would not be eligible for the education tax credit.

Withholdings

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.

Income tax is not required to be withheld from amounts taxable under paragraph 56(1)(n) of the Act, although a T4A Summary and related T4A Supplementaries are required to be prepared.

Roberta Albert, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

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