2 June 2010 External T.I. 2010-0378831E5 - Apprenticeship Training Tax Credit

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.

Principal Issues: 1. Whether the ATTC is government assistance for the purposes of calculating Ontario SR&ED tax credit.

Position: 1. Where the ATTC is received in respect of SR&ED activities, the ATTC is considered government assistance.

Reasons: 1. Subsection 127(18) of the ITA.

XXXXXXXXXX
									Robert Dubis
									2010-037883
June 2, 2011

Dear XXXXXXXXXX :

Re: Ontario Apprenticeship Training Tax Credit

This is in response to your correspondence of August 20, 2010, regarding the Ontario Apprenticeship Training Tax Credit (ATTC). You asked for clarification of the Canada Revenue Agency's position that the Ontario Apprenticeship Training Tax Credit (ATTC) is "government assistance" for the purposes sections 38 and 96 of the Taxation Act, 2007(Ontario) (TA).

Written confirmation of the income tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to offer the following comments.

Government assistance in sections 38 and 96 of the TA adopt the meaning given to that term in section 127 of the Income Tax Act (ITA) with specific exceptions for other Ontario tax credits. The ATTC is not one of the specified exceptions listed for either the Ontario Research and Development Tax Credit (ORDTC) nor the Ontario Innovation Tax Credit (OITC), sections 38 and 96 of the TA respectively.

For the purposes of determining whether an amount constitutes "government assistance" for the purposes of sections 38 and 96 of the TA, the underlying matter of statutory interpretation is subsection 127(18) of the ITA, effective for taxation years after 1995. Legislation dealing with government assistance prior to 1995 was contained in former paragraph 127(11.1)(c) of the ITA.

In Rulings documents E9811816, the Income Tax Rulings Directorate addressed the legislative change and notes that subsection 127(18) of the ITA is broader in its application than former paragraph 127(11.1)(c) of the ITA. Paragraph 127(11.1)(c) required the assistance to be linked to "qualified expenditures", however, subsection 127(18) of the ITA only requires that the assistance be linked to SR&ED. Whether assistance can reasonably be considered to be in respect of SR&ED is a question of fact to be determined on a case-by-case basis. The document also states that where the assistance, or a portion thereof, is in respect of something other than SR&ED, the assistance or portion thereof, would not reduce the qualified expenditures. Finally, the document confirms that the policy intent is that subsection 127(18) of the ITA applies on a project-by-project basis. The document refers to the CRA's comments at the 1997 Ontario Tax Conference and I have enclosed those comments for your information.

In Rulings document E9809735, we commented on a hypothetical situation wherein a taxpayer received a government grant to assist in the construction of a building in which SR&ED was carried out, but the building was not a prescribed special purpose building. We stated that subsection 127(18) of the ITA would apply to reduce the taxpayer's qualified expenditures because the assistance was in respect of SR&ED to be carried on within the building.

In Rulings document E2007-0226411E5, we addressed a situation where government funding was provided to a Crown Corporation without a requirement for, or disclosure of any anticipated SR&ED expenditures during the approval process. The document states that the application of subsection 127(18) of the ITA is not limited to those situations where the assistance is specifically identified for SR&ED activities by the payor at the time of providing the assistance. The document stated that unless it can be established from the documentation and other relevant information that the government assistance was provided solely in respect of other non-SR&ED activities, that a portion of the assistance could reasonably be considered to be in respect of SR&ED for the purposes of subsection 127(18) of the ITA.

In summary, whether a taxpayer's ATTC can reasonably be considered to be government assistance in respect of SR&ED is a question of fact to be determined on a case-by-case basis. Where the ATTC, is in respect of SR&ED, it would be considered government assistance for the purposes of subsection 127(18) of the ITA and sections 38 and 96 of the TA.

We trust our comments will be of assistance to you.

Yours truly,

Sharmini Ratnasingham
Manager
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy & Regulatory Affairs Branch

Enclosure