17 December 2010 External T.I. 2010-0381611E5 - Taxability of Co-Op Honorarium Payments

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 a $XXXXXXXXXX honorarium paid to participants in a XXXXXXXXXX -week co-op opportunity is taxable and how should it be reported.

Position: Depends on whether an individual is an employee. If amounts are income from employment then employer is required is withhold appropriate amounts and report them on a T4 slip.

Reasons: Honorariums are usually payments for services and are generally taxable as income from an office or employment.

XXXXXXXXXX
									2010-038161
									Andrea Boyle, CGA

December 17, 2010

Dear XXXXXXXXXX :

Re: Honorarium for Co-Op Placement

I am writing in reply to your letter dated September 20, 2010, in which you indicated that, in partnership with the XXXXXXXXXX , your corporation provides a XXXXXXXXXX -week co-op opportunity to XXXXXXXXXX to provide them with an opportunity to gain XXXXXXXXXX experience in their profession . You have indicated that, at the end of the co-op period, your corporation pays the participants a $XXXXXXXXXX honorarium as a "thank-you gesture." You have asked whether the amount paid is taxable and how it should be reported. It is your view that there is no employer-employer relationship between the corporation and the participants.

The particular situation outlined in your letter relates to a factual one, involving specific taxpayers. Written confirmation of the 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, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. We are, however, prepared to offer the following general comments, which may be of assistance.

All statutory references in this letter are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended.

The term "honorarium" is not defined the Income Tax Act. Usually, an honorarium is a payment for a service; accordingly, in most instances, it would not be appropriate to characterize such a payment as a non-taxable gift. In our view, honorariums are generally taxable either as income from an office or employment. Where an individual is an employee, an honorarium or "gift" provided by the employer to that employee will be a taxable benefit to the employee in accordance with paragraph 6(1)(a) and withholding on the payment would be required.

Whether an individual is an employee is a question of fact. While more information would be required to make a more definite determination, from the brief information which you have provided, the co-op work placement appears to be quite similar in nature to an internship. An intern is generally a person who is gaining practical work experience under supervision and interns may only receive a small salary as compensation for their services. 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 in respect of the services rendered would be taxable as employment income under the provisions of sections 5 and 6.

Where the amounts paid are considered to be income from an office or employment the employer would be required to withhold the appropriate amounts and report such amounts on a T4 slip.

We trust that these comments will be of assistance.

Yours truly,

Randy Hewlett
Manager
for Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch