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: Whether the PEI Department of Agriculture must issue information slips to recipients of government assistance paid under certain Canada-PEI Business Development Programs.
Position: Yes. There are 4 sub-programs which involve the payment of government assistance substantially to individuals or entities engaged in a farming business. The assistance is, in the majority of cases, paid as compensation in respect of costs incurred in respect of a farming business and therefore should be reported by the payor on an AGR-1. As regards one sub-program (Skills Development) involving payments generally in respect of training, the recipients may not, in all cases, be engaged in a farming business nor the payments be made in respect of costs attributable to a farming business. Such government assistance is in the nature of a bursary, taxable under 56(1)(n). Such payments should be reported on a T4A.
Reasons: The law.
March 5, 2010
James Atkinson CGA
XXXXXXXXXX (519) 457-4832
2010-035584
Attention: XXXXXXXXXX
Re: Canada-PEI Business Development Programs:
Self-Assessment, Financials, Planning & Skills
This is in response to your email dated January 28, 2010 concerning the above named programs. In your email, you requested our opinion on whether payments made under the above-noted programs would qualify as a "farm support payment" (defined in subsection 234(2) of the Income Tax Regulations) and whether the payor, the Prince Edward Island Department of Agriculture ("DOA"), would be obligated to issue AGR-1 tax forms in respect of payments made to participants in the above-named programs.
Our understanding of the Canada-PEI Business Development Programs (BDPs) is based on the information you have provided, our recent telephone conversation (Atkinson/XXXXXXXXXX ) of February 3, and as gleaned from the DOA's website (www.gov.pe.ca/growingforward/index.php3). The BDPs, which consist of four separate sub-programs, are intended to provide Prince Edward Island farmers ("PEI Farmers") with skills training, business practices assessment and business planning assistance in order to enhance their ability to respond to change and to facilitate the development of sound business practices. A brief description of each sub-program is as follows:
Self-Assessment ("SA Program")
The objective of the SA Program is to encourage PEI Farmers to assess their current farm management practices and skills; to build on the strengths they have identified; then to develop and implement sound business management practices and action plans.
Eligible participants may receive up to $2,000 of government assistance in the form of a reimbursement of expenses for:
- the purposes of implementing their action plan or business plan, which has been developed through the Canada - PEI Business Development Program and approved by the DOA, and/or;
- 50% of a participant's costs associated with one year enrollment in the Prince Edward Island Agricultural Production Insurance program, and/or;
- 50% of a participant's program fee in the AgriStability Program.
Financials ("Financials Program")
The objective of the Financials Program is to educate PEI Farmers with a view towards enabling them to better understand their financial situation and benchmark their farm performance, prior to making plans for the future development of their businesses.
Eligible participants may receive up to $1,500 of government assistance in the form of a reimbursement in respect of consulting services acquired to have a financial analysis and assessment, interpretation and recommendations prepared for their business.
Planning ("Planning Program")
The objective of the Planning Program is to support PEI Farmers who want to assess, through business planning, the implications of changes to their businesses. This program is designed to enhance farmers' ability to manage transition, respond to change, and adopt innovation.
Eligible participants may receive up to $30,000 of government assistance in the form of a reimbursement in respect of consulting services to have action plans including projections, strategic plans, succession plans, comprehensive business plans or parts thereof, and/or feasibility assessments prepared for their business, as well as follow-up consulting at a later date to discuss progress with the plan, to update projections, and to receive further advice if necessary.
Skills ("Skills Program")
The objective of the Skills Program is provide PEI Farmers and their spouses with access to skills training which has the potential to increase farm profitability and/or total family income, and to enable farm families to make choices about sources of income, pro-actively manage risks, and be better positioned to adopt new technologies. The sub-program has two components in respect of "On-Farm Skills Training" and "Off-Farm Skills Training". On-Farm Skills Training refers to skills development and training in areas including farming practices, business management, accounting, finance, marketing, human resource management, and other skills which may have been identified in an action plan developed through the SA Program. Off-Farm Skills Training refers to skills development and training in alternative off farm employment and/or alternative business opportunities.
Eligible participants may receive up to $16,000 of government assistance to cover the costs of skills development and training, including the costs of tuition, registration, text books, travel, childcare and replacement labour.
Canada-PEI BDPs - Eligible Participants
There are various conditions which must be met in order to qualify for government assistance under the BDPs. The SA Program, Financials Program and Planning Program generally restrict participation to those persons actively engaged in commercial agricultural production (i.e., farming), whether as an individual (i.e., a sole proprietor), or as an entity, organized as a partnership, corporation or cooperative. An individual, who is described as "beginning farmer" may also qualify providing such a person can establish to the DOA's satisfaction, the intent and ability to carry on a farming business.
With respect to the Skills Program, eligibility is restricted to individuals (as applicant and recipient) rather than entities such as a partnership or corporation. In addition, eligibility is extended to the spouse of a qualifying individual or beginning farmer.
Our Comments
Useful comments in respect of the tax treatment of government assistance can be found in Interpretation Bulletin IT-273R2, Government Assistance - General Comments, available from the CRA website (http://www.cra-arc.gc.ca).
Part II of the Income Tax Regulations ("Regulations") imposes an obligation on persons who make certain payments to file information returns. These provisions can apply to a wide variety of payments, including certain forms of government assistance. Whether the DOA is obligated to issue tax forms in respect of payments made to participants in the BDPs rests substantially upon the determination whether such payments are included in any of the provisions listed in Part II of the Regulations.
Pursuant to subsection 234(1) of the Regulations, every government, municipality or municipal or other public body or producer organization or association that makes a payment of an amount that is a "farm support payment" ("FSP") to a person or partnership is required to make an information return in prescribed form in respect of the amount (AGR-1). A FSP is defined in subsection 234(2) of the Regulations to include a payment that is computed with respect to an area of farm land; a payment that is made in respect of a unit of farm commodity grown or disposed of or a farm animal raised or disposed of; and a rebate of, or compensation for, all or a portion of cost or capital cost incurred in respect of farming, or, unsowed or unplanted land or crops, or destroyed crops, farm animals or other farm output.
Based on the information provided, payments made under the SA Program, the Financials Program and the Planning Program constitute FSPs as the business activities of the recipients constitute farming, and the payments reflect either a rebate or compensation or, all or a portion of cost or capital cost incurred in respect of farming (i.e., training, consulting, AgriStability program fees). Consequently, there is an obligation to file an AGR-1 information return in respect of payments made by the DOA under these programs.
In respect of payments made under the Skills Program, payments in respect of On Farm Skills Training made to an individual, who carries on the business of farming as a sole proprietorship, constitute FSPs as the amounts reflect a rebate of, or compensation for, a cost incurred in respect of farming. Where such payments are made to an individual who does not personally carry on a farming business, or where the payments are made in respect of Off Farm Skills training, it is our view that the payments may be considered to be made on account of a bursary. A bursary, as described in paragraph 6 of Interpretation Bulletin IT-75R4 - Scholarships, Fellowships, Bursaries, Prizes and Research Grants, is an amount paid, or benefit given, to a student to enable them to pursue their education. CRA Guide P105 Students and Income Tax provides useful comments with respect to the tax treatment of amounts received in the nature of a bursary.
Paragraph 200(2)(a) of the Income Tax Regulations require every person who makes a payment as or on account of, or who confers a benefit or allocates an amount that is a scholarship, fellowship or bursary, or a prize for achievement in a field of endeavour ordinarily carried on by the recipient thereof (other than a prize prescribed by section 7700) to report such amount on a T4A slip. Therefore, the DOA will be required to report the payments of the nature discussed in the preceding paragraph to recipients on a T4A.
Should you have questions concerning assistance payments in a specific case, we would be pleased to offer further assistance and guidance in making a determination as to whether such assistance payments are FSPs that are required to be reported on an AGR-1 information return, or alternatively, on a T4A information return.
We trust that these comments will be of assistance.
Yours truly,
S. Parnanzone
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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