15 November 1999 External T.I. 9916345 - 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: Our comments have been requested in respect of individuals who will participate in the Government of Canada's Youth Employment Strategy Program (the individuals will receive work experience in a foreign country). It is noted that payments under this program are not taxable under paragraph 56(1)(r) of the Act. Pursuant to a discussion with Jane McIsaac (953-7392) of HRDC, the funds for this program (as approved by Treasury Board) are received from the Consolidated Revenue Fund and does not involve the Employment Insurance Act. (The funds are not provided under Part II of the Employment Insurance Act or by virtue of an agreement because of section 63 of the Employment Insurance Act.)

Position: General comments were provided. We have indicated that, generally, an intern would be considered to be an employee (the documentation and that the fact that amounts paid to an intern are considered to be an estimate of the personal expenses would not alter the nature of the payments.

Reasons: See position

The Canadian Federation
of Agriculture
423 Bronson Avenue 991634
Ottawa ON K1R 5J6 M. Eisner

Attention: Dorothy Poole

November 15, 1999

Dear Sir:

Re: Government of Canada Youth Employment
Strategy Program (the "Strategy Program")

This is in reply to your letter of June 9, 1999, concerning above noted subject. We apologize for the delay in responding.

The Canadian Federation of Agriculture ("Agriculture") administers the Strategy Program which is designed to provide Canadian youth with their first international work-related experience consistent with their area of study. The program aims to assist out-of-school youth in Canada in making the transition from school to the workplace.

The Department of Foreign Affairs and International Trade ("Foreign Affairs") Youth International Internship Program (the "Intern Program") is funded under the Strategy Program. Foreign Affairs provides funds to implementing organizations who find placements with host organizations and recruit interns. Agriculture oversees the implementation of the Intern Program.

In general terms, interns are out-of-school youths who are under-employed or unemployed individuals under 30 years of age who will receive their first internationally focused work experience. Internships are for a period of 6 months to a year and each intern receives the amount of $12,000. This amount is intended to cover the costs that the intern will incur for travel to and from the work location, medical insurance, any language training that may be necessary and personal expenses (rent, food, toiletries etc.). However, in some locations such as Paris and Washington where living costs are high, a host organization may pay the intern a cash top-up.

Implementing organizations are Canadian or international organizations which are capable of ensuring that an internship project is properly carried out. Amongst other things, an implementing organisation develops agreements with interns and employers hosting the interns for the purpose of obtaining the proper results from internships. Hosting organizations (e.g., an international organization with operations in other countries) ensure that the intern is provided with office space and equipment and develop a work plan with the implementing organization and/or the intern so that the intern will have a meaningful full-time work experience. It is expected that the internship will lead to full-time employment or self-employment when the intern returns to Canada.

You have indicated that Agriculture does not consider the interns to be employees and, accordingly, does not make any payroll deductions for the amounts paid to the interns. You have asked us for our view on whether the amount paid to the interns is taxable and in the event it is taxable, whether the interns can claim any deductions.

Our Comments

It is our general view that an intern would be an employee with respect to an internship and that funds paid to him or her (including a top-up) in respect of the services rendered would be taxable as employment income under the provisions of sections 5 and 6 of the Act. The fact that the amounts paid to an intern are considered to be an estimate of the personal expenses that the intern will incur, does not alter the nature of the receipts.

When an individual carries out some of his or her duties outside Canada, but is a continuing resident of Canada for income tax purposes, the internship income earned outside Canada is taxable for Canadian income tax purposes. In our view, an intern would be a continuing resident while carrying out an out-of-country work assignment. In the event that the internship income received by an intern is taxable in a foreign country, he or she would be entitled to claim a foreign tax credit. Some comments on foreign tax credits are set out on page 40 of the "General Income Tax and Benefit Guide" (the "Guide") which has been enclosed.

We are also providing you with the following comments which may be relevant to Interns:

(a) With respect to language training, an Intern may be eligible to claim a tuition tax credit and an education tax credit. For general information on these credits, you may refer to pages 7 to 12 of the enclosed pamphlet entitled "Students and Income Tax."

(b) An Intern may be eligible to claim moving expenses in travelling to a foreign country with respect to an internship. For general comments in this regard, you may refer to page 24 of the Guide and Form T-1M (copies enclosed).

(c) Premiums paid in respect of health insurance may be eligible expenses with respect to the medical expense tax credit (see the enclosed paragraph 65 of Interpretation Bulletin IT-519R2 "Medical Expense and Disability Tax Credits and Attendant care Deduction"). For your further information, paragraph 8 of Interpretation Bulletin IT-339R2 "Private Health Services Plans" (enclosed) provides the examples of medical and hospital insurance plans offered by Blue Cross and various life insurers that are considered to be PHSPs.

(d) We have enclosed a copy of the pamphlet entitled "Employment Expenses" which describes expenses that employees may claim in respect of employment income.

We trust that our comments will be of assistance to you.

Yours truly,

John Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

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