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 or parents of disabled children under the Employability Assistance for People with Disabilities (EAPD) Program and the Family Support (FS) Program. Both programs are administered by the province of Prince Edward Island.
Position:
1) Payment for 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:
1) position taken in similar files
2) wage subsidies made to employer, thus all payments from employer to employee as wages would constitute employment income
3) 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.
4) currently, no provision to tax such amounts
March 1, 1999
Charlottetown Taxation HEADQUARTERS
Services Office G. Moore
Sharon Bulger 952-1506
Client Services
7-990470
Payments Made by the Department of Health and Social Services, Province of Prince Edward Island
We are writing in reply to your correspondence of February 18, 1999, in which you asked for our opinion concerning the income tax treatment of payments made by the Department of Health and Social Services (DHSS) of the province of Prince Edward Island, to, or on behalf of, beneficiaries with respect to the Employability Assistance for People with Disabilities (EAPD) Program and the Family Support (FS) Program.
As we understand it, the EAPD Program is a program that responds to the needs of people with disabilities to overcome barriers to employment. It strives to do this by supporting a range of measures which are provided to enhance the economic participation of working age adults with disabilities in the labour market by helping them to prepare for, attain and retain employment. EAPD assistance is provided to individuals without a financial assessment (means or income test) being performed by DHSS. Individuals are eligible for assistance based on their disability status and their need for employability assistance. EAPD funding is available to an eligible recipient to purchase goods and/or services in order to remove substantial barriers to competitive employment and to assist an individual in attaining his or her employment goal that is developed using a case planning component. Examples of the types of payments that could be approved include:
- assistance aids (e.g., computer equipment, communication aids, specialized tools);
- human supports (e.g., sign language interpreter, reader, note taker);
- transportation assistance;
- training/tuition costs; and
- disability-specific supports for starting a small business.
According to the Canada - Prince Edward Island Agreement on Employability Assistance for People with Disabilities, dated April 21, 1998, the specific programs and services eligible for cost sharing between the Government of Canada and the Province of Prince Edward Island include employment counselling and assessment, technical advice, pre-employment training, skills development, post-secondary education support, school to work transitions, ongoing active employment support, assistive aids and devices, individualized funding, wage subsidies and earnings supplements, supported employment, vocational crisis interventions and self-employment. Eligibility for assistance under the EAPD Program is based on need and not an income test. As discussed during a telephone conversation (Moore/XXXXXXXXXX) of February 26, 1999, with an official responsible for administering the EAPD Program, it is our understanding that the federal funding for the EAPD Program is provided under the Department of Human Resources Development Act and not the Employment Insurance Act.
The FS Program provides support to families with children who have intellectual and physical disabilities and are under the age of 18 years. This program was originally intended to provide assistance for costs that were above those normally incurred for raising a child without a disability of the same age. This assistance is provided to individuals without a financial assessment (i.e., means or income test) being performed by DHSS. Families are eligible for assistance because they have a child with a disability and they demonstrate a need for assistance. During the 1996/1997 fiscal year, the FS Program has made expenditures for employment-related daycare, out-of-province travel related to specialist medical treatments, respite care, special equipment, medical supplies, drugs, diapers, and babysitting. The income levels of families in receipt of these funds and services is not known. Eligibility for assistance under the FS Program is based on need and not an income test.
You have asked if funds provided to individuals with disabilities under the EAPD Program or funds allocated to families with disabled children paid under the FS Program are considered taxable under the Income Tax Act ("the Act").
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 payments made under the EAPD Program and the FS Program 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.
Wage Subsidies and Incentives
It is our understanding that under the EAPD Program, wage subsidies are paid directly to a disabled individual's employer. The employer, in turn, pays these amounts, and in some cases, as wages to the employee. Generally, all amounts received by an individual from their employer as wages would be considered employment taxable under section 5 of the Act.
In a situation where the individual directly receives a wage subsidy from the EAPD Program, 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 EAPD Program is considered to be a project sponsored by a government in Canada and whether the financial incentive can be considered an earnings supplement. As the cost of the EAPD Program is funded jointly by the federal government (but not, as we understand it, under the Employment Insurance Act) and the government of the province of Prince Edward Island, the EAPD Program would likely be considered to be a project sponsored by a government in Canada.
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, 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 EAPD Program, 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.
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 EAPD Program, since the primary purpose of the payment of tuition/training 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 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.
Payment or Reimbursement of Medical Expenses
Under the FS Program, out-of-province travel related to specialist medical treatment, drugs and other medical expenses of a minor disabled child are paid or reimbursed. From our review of the information provided to us, it is our view that the amounts paid to qualifying parents of a disabled child in respect of medical expenses under the FS Program are not taxable. However, an individual who receives payment under the FS 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.
Payment or Reimbursement of Child Care Expenses
Under the FS Program, child care expenses are paid or reimbursed in respect of a minor disabled child. From our review of the information provided to us, it is our view that the amounts paid to qualifying parents of a disabled child in respect of child care expenses under the FS Program are not taxable. However, pursuant to subsection 63(1) and the definition of "child care expense" in subsection 63(3) of the Act, generally, if the child care expenses were not paid by the parents of a child or a supporting person (as defined in subsection 63(3) of the Act) of the child, the parents or a supporting person of the child are not entitled to deduct those child care expenses. As a general rule, the individual or supporting person claiming the child care expense must have paid the child care expense in order to be entitled to deduct the child care expense pursuant to subsection 63(1) of the Act. A reimbursement of child care expenses to a parent in respect of a disabled child under the FS Program would be viewed as payment of child care expenses for purposes of section 63 of the Act. Accordingly, if payments or reimbursements are made under the FS Program for child care in respect of a disabled child, in our view, the parents of the child or supporting person of the child would not be entitled to claim those child care expenses.
Other Payments Listed
As funding for the EAPD Program and the FS Program is not 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, payments made under the EAPD Program and the FS Program 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.
For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Department's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version or they may request a copy severed using the Privacy Act criteria which does not remove client identity. Requests for this latter version should be made by you to Jackie Page at 613 957-0682. The severed copy will be sent to you for delivery to the client.
R. Albert, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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© Her Majesty the Queen in Right of Canada, 1999
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