2 November 2007 External T.I. 2007-0227901E5 - Employability Skills through Work Experience

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: Are payments under the Employability Skills through Work Experience program taxable?

Position: Yes

Reasons: Payments are either earnings supplements under a government program encouraging participants to obtain or keep employment or employee wages.

							2007-022790
XXXXXXXXXX 						Shaun Harkin, CMA
(613) 957-9229
November 2, 2007

Dear XXXXXXXXXX:

Re: Technical Interpretation Request - Requirements For Reporting Wages/Stipends

This is in response to your email of March 19, 2007, wherein you asked whether amounts paid under the Government of Canada's Employability Skills through Work Experience ("ESTWE) program are taxable.

It is our understanding, from the "Applicant Guide For Skills Link And Career Focus Programs", that under the ESTWE program:

• Workshops that help build participants' employability skills are blended with periods where participants work directly with employers.
• The focus is on exposure to work and the majority of the participants' time is, therefore, dedicated to work experience.
• Participants may spend three days per week in work experience and the remaining two days in employability skills workshops.
• Financial support to participants is in the form of wages during the majority of the time dedicated to the work experience. Wages must equal or exceed the provincial/territorial minimum wage rate; however, Service Canada's contribution will not exceed the minimum wage rate.

Our Comments

Paragraph 56(1)(r) of the Income Tax Act (the "Act") includes in income various training-related amounts. In particular, subparagraph 56(1)(r)(i) includes in income "earnings supplements provided under a project sponsored by a government or government agency in Canada to encourage individuals to obtain or keep employment." In our view, payments under the workshop phase of the program constitute earnings supplements that must be included in income virtue of subparagraph 56(1)(r)(i) of the Act. Payments of earnings supplements described in subparagraph 56(1)(r)(i) of the Act must be reported on a T4A and income tax must be deducted and remitted. These payments are not subject to CPP contributions or EI premiums.

During periods where participants work directly with employers, the participants are employees. Therefore, amounts paid to participants for periods where participants work directly with employers must be included in the employee's income as income from employment by virtue of subsection 5(1) of the Act. Income from employment must be reported on a T4 information slip and deductions must be made for income tax, CPP contributions and EI premiums.

We trust that these comments will be of assistance to you.

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