9 March 2011 External T.I. 2010-0391171E5 - Ont. Apprenticeship Employer Signing Bonus & ATTC

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. Is the Ontario's Apprenticeship Employer Signing Bonus (AESB) considered "government assistance" for purposes of computing the Ontario Apprentice Training Tax Credit (ATTC)? 2. If the answer to (1) is yes, which taxation years' eligible expenditures are reduced by the AESB payments?

Position: 1. Yes. 2. A taxation year's otherwise eligible expenditures are reduced by an AESB payment if on the taxpayer's filing-due date for the taxation year, the taxpayer has received, is entitled to receive or may reasonably expect to receive the AESB payment.

Reasons: 1. The definition of "government assistance" in subsection 89(19) of the OTA. 2. Description of parameter "G" in the formula in Subsection 89(13) of the OTA

XXXXXXXXXX

Attention: XXXXXXXXXX					Tim Fitzgerald, CGA
								2010-039117

March 9, 2011

Dear XXXXXXXXXX

This is in reply to your letter of December 21, 2010 concerning the province of Ontario's Apprenticeship Employer Signing Bonus ("AESB").

We understand the facts to be as follows:

1. Aco is a XXXXXXXXXX company that provides XXXXXXXXXX services. Aco's taxation year end is June 30.

2. In its business, Aco hires and trains individual apprentices in the XXXXXXXXXX trade. As an employment service ("ES") employer, Aco participates in an apprenticeship program, the Ontario's ES Job Matching, Placement and Incentives Program. As such participant, Aco receives financial incentives in the form of two, $1,000 AESB payments, which are funded by the Ontario Ministry of Training, Colleges and Universities ("Ontario Ministry"). The AESB and the requirements to be met by ES employers to qualify for this financial incentive are described in a memorandum to ES employers issued by the Ontario Ministry dated April 27, 2010:

"A $2,000 Apprenticeship Employer Signing Bonus (AESB) is available to employment service (ES) employers who hire, register, and train an apprentice as part of their participation in Ontario's ES Job Matching, Placement and Incentives.

To qualify for the signing bonus, the ES employer must:

• Meet all requirements of employers participating in training incentive placements as per section 3.4 of the ES program guidelines.
• Commit to a relevant apprenticeship training plan for the participant, as part of an ES Training Incentive Placement Agreement.

Signing bonuses are awarded to the ES employer in two payments:

• An initial $1,000 payment when an individual's apprenticeship training agreement or apprenticeship contract is signed/registered with the ministry; and
• A final $1,000 payment six months from the apprenticeship signing/registration date if the apprentice is still working and training with the same employer.

In addition to the $2,000 AESB, the employer may also be eligible for a training incentive that can be negotiated, up to a maximum of $6,000, depending on the duration of the ES participant apprentice's placement with the employer and the complexity of the participant's training plan. The maximum amount of ES training incentive that one employer may receive is up to $8,000, including the $2,000 AESB."

3. For provincial income tax purposes, Aco claims the apprenticeship training tax credit ("ATTC") in respect of Aco's eligible expenditures for the year. The ATTC is computed as a percentage of the eligible expenditures.

4. With regard to the two, $1,000 AESB payments described in 2 above you have asked that we consider the following hypothetical scenario:

(i) During its 2010 taxation year Aco hires an individual to work and train with Aco as an apprentice at Aco's permanent establishment in Ontario.

(ii) An apprenticeship training agreement ("ATA") is signed/registered during Aco's 2010 taxation year. Salaries and wages are paid by Aco to the individual apprentice during Aco's 2010 and 2011 taxation year under the apprenticeship program.

(iii) The first six months of the ATA overlaps Aco's 2010 and 2011 taxation years.

(iv) Upon signing/registering the ATA, Aco is entitled to, and does receive during its 2010 taxation year, the first, $1,000 AESB payment. Since the ATA overlaps Aco's 2010 and 2011 taxation years, at the end of the 2010 taxation year, Aco is not yet entitled to the second, $1,000 AESB, since entitlement to this second $1,000 AESB payment occurs after six months from the apprenticeship signing/registration date if the apprentice is still working and training with the same employer.

(v) As of June 30, 2010 the individual apprentice continues to work for and train with Aco under the apprenticeship program.

Your Questions

For the hypothetical scenario described in 4 above, you have asked two questions, concerning the ATTC calculation. Firstly, you have asked whether the AESB payments constitute government assistance, which would reduce Aco's otherwise eligible expenditures for a taxation year.

Secondly, if the answer to question 1 above is yes, you would like to know whether both the first and second $1,000 AESB payments are to be recognized in Aco's 2010 taxation year to reduce otherwise eligible expenditures for the 2010 taxation year, or whether in the alternative each $1,000 AESB payment must be recognized in the taxation year in which it is received for purposes of reducing the corporation's otherwise eligible expenditures for the year.

Our Comments

The situation outlined in your letter appears to relate to a factual one, involving specific taxpayers. As explained in Information Circular 70-6R5, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an Advance Income Tax Ruling. In situations involving specific taxpayers and completed transactions, all relevant facts and documentation should be submitted to the appropriate tax services office ("TSO") for their views. A list of TSOs is available on the "Contact Us" page of the CRA website. Although we cannot comment on your specific situation, we offer the following general comments, which may be of assistance.

The ATTC is an Ontario refundable tax credit that is provided in section 89 of the Taxation Act, 2007 [Ontario] ("OTA"). The Corporation Tax Information Bulletin ("CTIB") 4015, Apprenticeship Training Tax Credit, issued by the province of Ontario in April, 2010 provides a general description of the ATTC:

"The 2009 Ontario Budget introduced enhancements to the ATTC for expenditures incurred after March 26, 2009. The ATTC reimburses employers 35 per cent of eligible expenditures. Small businesses are eligible for a higher credit rate of 45 per cent. The maximum annual amount of the tax credit is $10,000 per qualifying apprentice during the first 48 months of an apprenticeship program. For expenditures incurred prior to March 27, 2009, the ATTC reimburses employers 25 to 30 per cent of eligible expenditures paid during the first 36 months of an apprenticeship program to a maximum annual credit of $5,000. The enhanced maximum amount of the ATTC is prorated for taxation years straddling the effective date."

The terms "apprenticeship program" and "qualifying skilled trade" are defined in subsection 89(19) of the OTA for purposes of the ATTC.

Subsection 89(9) of the OTA defines the term "eligible expenditures" for purposes of the ATTC. Generally, eligible expenditures include salary and wages paid to an apprentice in a qualifying skilled trade and any fees paid to an employment agency for service performed by the apprentice in a qualifying apprenticeship. Subsection 89(11) of the OTA further provides that other expenditures as may be prescribed by regulation may also be eligible expenditures subject to any conditions that may be prescribed by regulation being met.

Subsections 89(9) and (11) of the OTA are subject to subsection (12), which requires that the expenditures be reasonable, and subsection (13), which is discussed below.

For ATTC purposes, a taxpayer's otherwise eligible expenditures made in a taxation year are reduced by any government assistance that, on the taxpayer's filing-due date for the year, the taxpayer has received, is entitled to receive or may reasonably expect to receive in respect of the eligible expenditures. The formula is set out in subsection 89(13) of the OTA:

"Apprenticeship training tax credit

89.

Total eligible expenditures

(13) For the purposes of this section, the total of eligible expenditures made by a taxpayer in respect of a qualifying apprenticeship in a taxation year is calculated using the formula,

F - G

in which,

"F" is the sum of the amounts determined under subsections (9) and (11), and
"G" is the amount of all government assistance, if any, that on the taxpayer's filing-due date for the year, the taxpayer has received, is entitled to receive or may reasonably expect to receive in respect of the eligible expenditures." (emphasis added)

"Government assistance" is defined in subsection 89(19) of the OTA for purposes of the ATTC to mean assistance in any form from a government, municipality or other public authority, and includes a grant, subsidy, forgivable loan, deduction from tax or investment allowance. There are certain exceptions provided in the definition in subsection 89(19) but none pertain to the AESB.

In answer to your first question, in view of the wide meaning given to the phrase "government assistance" by subsection 89(19) of the OTA, the AESB payments are, in our view, government assistance for purposes of parameter "G" in the formula above.

Your second question deals with when an AESB payment reduces the eligible expenditures for purposes of computing a taxpayer's ATTC. An AESB payment reduces the eligible expenditures for purposes of computing a taxpayer's ATTC for a particular taxation year if, on the filing deadline of the tax return for the particular taxation year, the taxpayer "has received, is entitled to receive or may reasonably expect to receive" the AESB payment.

It is a question of fact whether or not a taxpayer "has received" an amount. The meaning of the term received is not necessarily limited to those situations where an amount has been received in cash. For example, an amount may be said to have been received by the taxpayer at the time when:

• it was received by a person authorized to receive it on behalf of the taxpayer;
• it was offset against an amount owing by the taxpayer; or
• it was paid or transferred to a third party pursuant to the direction of or with the concurrence of the taxpayer (this may be implicit).

Generally, we consider a claimant to be "entitled to receive" an amount as assistance, when, for example:

• before receiving the assistance, a certain event has to occur and/or the claimant has to fulfill some condition and the event has occurred and/or the condition has been fulfilled (e.g., the Ontario Ministry's conditions for receiving the AESB payments have been met), and/or
• the claimant possesses an enforceable right to receive the assistance.

Generally, we consider that a taxpayer "may reasonably expect to receive" an amount as assistance at the point in time when, for example:

• the claimant has applied for assistance and, based on the circumstances (e.g., the Ontario Ministry's conditions for receiving the AESB payments will very likely be met), it is reasonable to believe that it will be received; or
• the claimant has received information advising that assistance will be received.

In answer to your second question, since the first, $1,000 AESB payment was received by Aco during its 2010 taxation year, this payment is included in the value of parameter "G" in the formula above to reduce Aco's eligible expenditures for the 2010 taxation year for purposes of the ATTC. With regard to the second $1,000 AESB payment, if on Aco's filing-due date for the 2010 taxation year (i.e. December 31, 2010), Aco "has received, is entitled to receive or may reasonably expect to receive" (as explained above) this payment, then this amount would also be included in the value of parameter "G" to reduce Aco's eligible expenditures for the 2010 taxation year for purposes of the ATTC. Generally, if as of December 31, 2010, Aco has satisfied the Ontario Ministry's conditions for receiving the second $1000 AESB payment, the payment will reduce the eligible expenditures for the 2010 taxation year.

We trust our comments are helpful.

Sandy Parnanzone
Manager
For Director,
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Division