19 May 2010 External T.I. 2009-0352621E5 - Employee Recruitment 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 recruitment payment made to recent graduates is taxable.

Position: Yes

Reasons: Payments made as consideration for entering into a contract of employment are deemed to be remuneration for services.

								2009-035262
XXXXXXXXXX 							Rita Ferguson
								519-645-5261
May 19, 2010

Dear XXXXXXXXXX :

Re: Nursing recruitment

This is in response to your letter of December 23, 2009 inquiring about the taxation of payments made by the XXXXXXXXXX (the "Employer") to new nursing graduates.

The Employer offers a "XXXXXXXXXX " (the "Contract") to new nursing graduates when they are hired. The Contract provides for two payments to the prospective employee (the "Employee"), the first upon signing of the Contract and the offer of employment letter, and the second upon submission of the Employee's temporary nursing registration. In return the Employee will agree to work for the Employer for a minimum period after obtaining registration as a nurse. If the Employee does not remain with the Employer for the requisite period, or does not complete all of the requirements to obtain registration as a nurse within the allowed time frame, the Employee will be required to repay the amounts in full.

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 a request for an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, "Advanced Income Tax Rulings", dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the internet at http://www.cra-arc.gc.ca. Where the particular transactions are complete, the inquiry should be addressed to the relevant tax services office, a list of which is available on the "Contact Us" page of the CRA website. Although we cannot comment on your specific situation, we are prepared to provide the following comments in respect of the issues that you raised. Please note, however, that these comments are of a general nature only and are not binding on the CRA.

Subsection 5(1) of the Income Tax Act (the "Act") states that a taxpayer's income from an office or employment is the salary, wages and other remuneration, including gratuities, received by the taxpayer in the year. Subsection 6(3) of the Act states that payments made to a person are deemed to be remuneration for purposes of section 5 if they are received

"(a) during a period while the payee was an officer of, or in the employment of, the payer, or

(b) on account, or in lieu of payment or in satisfaction of an obligation arising out of an agreement made by the payer with the payee immediately prior to, during or immediately after a period that the payee was an officer of, or in the employment of, the payer,
[...] unless it is established that, irrespective of when the agreement, if any, under which the amount was received was made or the form or legal effect thereof, it cannot reasonably be regarded as having been received

(c) as consideration or partial consideration for accepting the office or entering into the contract of employment,

(d) as remuneration or partial remuneration for services as an officer or under the contract of employment, or

(e) in consideration or partial consideration for a covenant with reference to what the officer or employee is, or is not, to do before or after the termination of the employment." (emphasis added)

It is our view that the terms of the Contract indicate the payments are made as consideration for entering into the contract of employment. Any payment made by the Employer to the Employee pursuant to the Contract would therefore be included in employment income as required by subsection 6(3) of the Act.

We trust that these comments have been of assistance.

Yours truly,

Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch