11 March 1999 External T.I. 9901955 - ONTARIO DISABILITY SUPPORT 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: Taxation of various types of payments made to disabled individuals under the Employment Supports Program of the Ontario Disability Support Program.

Position TAKEN:

1) Payment of tuition and training costs is taxable under 56(1)(n)
2) Payment for wage subsidies is taxable as employment income under section 5
3) Assistance to self-employed individuals is taxable under 12(1)(x)
4) Other payments are not taxable

Reasons FOR POSITION TAKEN:

1) Position taken in similar files

2) Wage subsidies made to employer through client. All payments from employer to employee as wages would constitute employment income

3) Payments made to disabled individuals to assist them in starting their own businesses or to disabled individuals who are already self-employed would fall within the provisions of 12(1)(x).

4) Currently, no provision to tax such amounts

XXXXXXXXXX 		5-990195
G. Moore
March 11, 1999

Dear XXXXXXXXXX:

Re: Ontario Disability Support Program - Employment Supports Program

We are writing in response to your letter of January 19, 1999, and correspondence of March 9, 1999, from XXXXXXXXXX, regarding the income tax treatment of payments made under the Ontario Disability Support (ODSP) - Employment Supports Program.

As we understand it, the Employment Supports Program of the ODSP provides a wide range of supports that are intended to remove disability-related barriers to employment and lead to competitive employment for people with disabilities. According to Directive # 101- 01 entitled “Introduction to the ODSP Employment Supports Directives”, this can be conventional full-time or part-time waged employment, self-employment, membership participation in a business enterprise or contract employment.

The program will provide goods, services and other supports based on two key principles: first, that people with disabilities are capable and responsible for directing their employment planning and job finding strategies and second, that they are accountable for achieving their competitive employment goals. Under the program, some goods and services will be available to clients through bulk purchases or project funding. There may also be payments made directly to third party suppliers for approved goods and services. The program contemplates providing funds directly to clients to enable them to purchase the required good and service themselves. This policy is intended to allow clients greater control and self-determination in the development and implementation of their employment plan. All participants in the plan must be eligible, which means essentially that they must suffer a disability lasting more than one year which is a substantial barrier to competitive employment and which has been verified by a prescribed professional. An eligible client can receive service if two conditions are met; the client must have a competitive employment plan and there must be a signed Employment Support Funding Agreement.

There are two types of payment methods within the direct funding mechanism. Direct payment may be made to reimburse the client after the program receives an invoice which the client has paid or if the client has received approval for this method, funds may be forwarded to enable the client to make the payment based on quotes provided. The client would then pay for the goods or services directly. The payment will vary depending on the needs of the client.

Funding for the following services may be available as circumstances warrant: employment planning and assistance; employment preparation and training; mobility, speech, vision, hearing, reading and writing aids and devices; prosthetics and orthotics; adaptive technology; interpreter, reader, note taker, and intervenor services; travel, route and orientation training; job placement; job coaching and assistance with job searches; transportation assistance relating to employment supports; intervention where disability affects job retention; and on-the-job training. On-the-job training may take the form of funds paid into the client’s bank account and then forwarded to the employer to be paid back to the client as employment income. Money could also flow through a client to a third party to pay for training courses. Other training supports include advancing funds through the client to pay for books, training materials or course activities that would otherwise be inaccessible because of a disability.

With respect to the supports provided for disabled clients who want to be self-employed or who are already self-employed but in crisis because of a disability, benefits can take one of five forms:

• funding the costs of alternative media or formatting (e.g., Braille materials);
• assistance with license and loan applications (including interpreters, an attendant to assist in the process of payment of fees);
• accommodations in the workplace which is related to a barrier to completing training to start up the business and not assistance on a ongoing basis;
• training fees or tuition costs to participate in a self-employment training program; and
• disability related support for the entrepreneur to participate in training outside the business but related to the prospective business.

Payment will only recur if the client’s needs dictate. Individuals seeking to benefit from the program work with an Employment Supports Specialist to review available resources, possible funding mechanisms and payments options and schedules. If approved for Direct Funding, the client must submit invoices to receive payment, unless approved for prepayment of funds, and the client is fully accountable for all funds received. Any amount that is advanced to the client which is not paid to a supplier of goods or services is considered an overpayment which will be recovered. In certain cases, the client will be required to make a contribution to the cost of the goods or services to be provided. Where the income level of the recipient together with the income of the client’s spouse (and parents if the client is 16 or 17 years of age) exceeds $51,000 after certain deductions are taken, a contribution will be recovered from that client. However, the contribution will not exceed 30% of the amount by which the total of the client’s own income plus income of other family members minus the specified deductions, exceeds $51,000. If the client receives the full benefit of the advance without being required to make a contribution, it is because the total income of the client and spouse, and parents, where applicable, are below this level.

The Employment Supports Program of the ODSP is eligible for cost sharing under the federal/provincial Employment for People With Disabilities Agreement.

You have also enquired as to the income tax treatment of the payments made under the Employment Supports Program of the ODSP. You have indicated that payments made under the Employment Supports Program of the ODSP would not constitute income from a source because the payments are made only to reimburse a client after approved expenditures have been made or as an advance for approved expenditures. It is your view that since the funds must be paid over to an approved supplier of goods and services, the payments do not have the quality of income as the payments are not available to the client to be used as the client sees fit. You have also indicated that, based on the criteria established by the courts, as set out in Interpretation Bulletin IT-334R2, Miscellaneous Receipts, the payments do not constitute income to the client. It is also your view that the payments are more akin to a windfall and therefore, not subject to tax.

It is also your view that such payments would not be considered social assistance for the purpose of paragraph 56(1)(u) of the Income Tax Act (“the Act”). You do not believe that payments made under the ODSP are based on a means, needs or income test as a client becomes eligible based on having a disability which is a substantial barrier to employment rather than on the basis of financial need. Your interpretation of the words “means, needs or income” in paragraph 56(1)(u) of the Act are that they relate to financial or economic need rather than to a physical need arising from a disability. Accordingly, you do not believe that the payments made under the Employment Supports Program of the ODSP would be included in income as social assistance payments by virtue of paragraph 56(1)(u) of the Act.

Our Comments

Income From an Unenumerated Source

As indicated in IT-334R2, section 3 of the Act brings into income, for tax purposes, a taxpayer’s income from all sources and the taxable capital gains net of allowable capital losses. Unless specifically exempted by a provision of the Act, a taxpayer will usually be taxable in full on non-capital receipts from a source whether or not the particular source is enumerated in section 3 of the Act. You have referred to the criteria set out in paragraph 3 of IT-334R2 which are relevant in determining whether a particular receipt is a windfall. Based on the information provided to us about the ODSP, it is our view that a client would likely have to make an organized effort to receive a payment under the ODSP by completing an application form and meeting other requirements of the Program and the client would have to seek or solicit payments for goods and services under the Program. Accordingly, we do not agree with your view that all of the payments made under the Employment Supports Program of the ODSP would be considered a windfall not subject to tax.

Meaning of “Social Assistance”

Since the term “social assistance” is not defined in the Act, one must look to the meaning of the term as it is ordinarily defined and understood, in order to determine whether paragraph 56(1)(u) of the Act applies in a particular situation. “Social assistance” or “social security” is defined in the Oxford English Dictionary (2nd Ed.) as a system whereby the state provides financial assistance for those citizens whose income is inadequate or non-existent owing to disability, unemployment, old age, etc.. Section 18 of the Federal Provincial Fiscal Arrangements Act and a number of other Acts support the view that “aid made in any form to or in respect of a person in need” should be quantified as social assistance. In our view, the $51,000 family income threshold used to determine if a client is required to pay a portion of the cost of the goods and services, is not a “means, needs, or income test” as referred to in paragraph 56(1)(u) of the Act. Accordingly, the payments made under the Employment Supports Program of the ODSP would not be considered social assistance for purposes of paragraph 56(1)(u) of the Act, since the determination of whether payments are made under those programs is based on a particular individual’s disability, among other things, and not on the income needs of the individual.

Assistance for Tuition/Training Costs

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 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 a 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 based on a review of all relevant 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 Employment Supports Program of the ODSP, since the primary purpose of the payment of tuition/training costs appears to be to provide financial assistance to disabled clients 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 enrolment 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, Canada Pension Plan contributions, and Employment Insurance deductions 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 required to be included in the individual’s income, as in this situation.

With respect to 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.

Wage Subsidies and Incentives

Under the Employment Support Program of the ODSP, on the job support may take the form of funds paid into the client’s bank account and then forwarded to the employer to be paid back to the client as employment income. The client has no right to the funds forwarded under the ODSP into his or her bank account and would be subject to collection procedures and expulsion procedures if the money were appropriated for some other use.

Generally, all amounts received by an individual from their employer as wages would be considered employment income that is taxable under section 5 of the Act. In a situation where the individual directly receives a wage subsidy from the Employment Supports Program of the ODSP, 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 ODSP is considered to be a project sponsored by a government in Canada and whether the financial incentive can be considered an earnings supplement. Based on the information provided to us, as the Employment Supports Program of the ODSP is eligible for cost sharing under the federal/provincial Employment for People With Disabilities Agreement, the Employment Supports Program of the ODSP would likely be considered to be a project sponsored by a government in Canada.

With respect to the arrangement that ODSP has with a client whereby funds are paid into the client’s bank account and then forwarded by the client to his or her employer to be paid back to the client as employment income, in our view, the funds are not taxable in the client’s hands at the time the funds are deposited in the client’s bank account by ODSP for the purpose of flowing the funds through to the employer, provided that the client, does, in fact, forward the funds to the employer. We would consider that these funds are employment income to the client when they are paid to the client as such in his or her capacity as employee by his or her employer. If the client does not forward the funds to his or her employer, as required under the ODSP, an argument can be made that the client has directly received a wage subsidy from the ODSP and, as indicated above, it will be a question of fact whether these amounts are taxable pursuant to subparagraph 56(1)(r)(i) of the Act. If the funds are taxable pursuant to subparagraph 56(1)(r)(i) of the Act, they would be required to be included in the client’s income for the year in which the funds were received.

Assistance Provided to Help Start Self-Employment Businesses

With respect to the supports provided under the Employment Supports Program of the ODSP for disabled clients who want to be self-employed or who are already self-employed but in crisis because of a disability, benefits can take one of five forms: funding the costs of alternative media or formatting (e.g., Braille materials); assistance with license and loan applications (including interpreters, an attendant to assist in the process of payment of fees); accommodations in the workplace which is related to a barrier to completing training to start up the business (but not assistance on an ongoing basis); training fees or tuition costs to participate in a self-employment training program; and disability related support for the entrepreneur to participate in training outside the business but related to the prospective business.

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, subparagraph 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 Employment Supports Program of the ODSP, payments made to disabled individuals to assist them in starting their own businesses or to assist a disabled individual who already owns a business 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.

Payment or Reimbursement of Medical Expenses

Under the Employment Supports component of the ODSP, the cost of medical devices such as mobility, speech, vision, hearing, reading and writing aids and devices, and prosthetics and orthotics are paid or reimbursed. From our review of the information provided to us, it is our view that the amounts paid to eligible clients in respect of medical expenses under this Program are generally not taxable (unless paragraph 12(1)(x) or another provision of the Act applies). However, an individual who receives payment under the Program for medical expenses would not be entitled to include the cost of such medical expenses as an eligible medical expense because the receipt of such amounts would be viewed as a reimbursement of medical expenses under paragraph 118.2(3)(b) of the Act.

Other Payments Listed

Based on the information provided, as it does not appear that funding for the Employment Supports component of the ODSP is provided by the Employment Insurance Act, the other benefit payments cannot be taxed under subparagraphs 56(1)(a)(iv), 56(1)(r)(ii) or 56(1)(r)(iii) of the Act. 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, as indicated above, payments made under the Employment Supports component of the ODSP would not be considered social assistance, for purposes of paragraph 56(1)(u) of the Act, since the determination of whether payments are made under those programs is based on a particular individual’s disability among other things, and not on the income needs of the individual.

We trust our reply will be of assistance to you.

Yours truly,

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

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