7 April 1991 Income Tax Severed Letter - Training Trust Funds

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.

Dear Sirs:

Re: Training Trust Funds

This is in response to your correspondence of March 14, 1991 and January 15, 1991. We understand that our respective legal counsels (Dixon/Davidson) have also been dealing with this matter since October 1990. We apologize for the delay in providing you with a reply.

Background information, provided by your legal services, gives us the following understanding regarding training trust funds:

• 1. In 1985, the Federal Government introduced a series of new employment and training programs known collectively as the Canadian Job Strategy. These were programs of financial assistance to support various types of employment and training initiatives. One of the programs was a grant program to provide support for training trust funds (TTFs).
• 2. TTFs are usually established pursuant to collective agreements between the relevant unions and employers' organizations. Frequently, such TTFs are administered pursuant to a written agreement and declaration of trust by a joint board of trustees consisting of equal union and employer representation, although not all TTFs are jointly administered. To qualify for funding from Employment and Immigration Canada, a TTF must be established by a trade union or other employee association, or group of unions or employee organizations representing the employees who are members of the TTF. It may be established independently or jointly with an employer or group of employers.
• 3. The goal of TTFs is to establish a long-term commitment to training on the part of an employer and/or employees. TTFs, to qualify for grants, must be intended to support skill development and upgrading to facilitate adjustment to technology and market change. In our telephone conversation of March 6, 1991 (Short/MacNeil), your Department stated that it is your understanding that TTFs may provide training to unemployed workers. This information is, in part, confirmed by comments in the May 1985 edition of "The Canadian Legal and Legislative Benefits report" which states that the objectives of TTFs include, inter alia, the provision of training courses for both members of a union and, in certain cases, other members of the public, to provide special training courses to rehabilitate injured workers or persons suffering from nonoccupational injury or disease and to train persons so that they will be in a better position to obtain or retain employment and thereby meet the demands of employers.
• 4. There are numerous restrictions relating to the quantum and duration of grant funds to TTFs. The amount of grant funds to be received by a TTF from Employment and Immigration Canada is a function of the amount contributed by employer and/or employee members, within limits. A TTF agreement must clearly delineate the purposes of the training fund and indicate that a TTF may not be used for any other purpose except to pay the costs of the administration of the TTF that are properly incurred pursuant to the agreement. The only payments to trustees that are permissible are payments to reimburse trustees for expenses that are reasonable and necessary. Trustees cannot be remunerated for their position or office.

You have queried whether TTFs are taxable trusts, requiring that a tax return be filed. If this is the case, you have asked for our comments regarding filing deadlines. Secondly, you have asked whether employees will be taxed on the value of any benefit received from training that is funded by a TTF.

We have further reviewed our position as stated in our letter of opinion dated February 19, 1990. It is our view that TTFs may qualify as non-profit organizations and hence exempt from income tax pursuant to paragraph 149(1)(l) of the Income Tax Act if they conform with the rules and comments set out in Interpretation Bulletin IT-496, a copy of which is enclosed for you. However, we point out that the determination of non-profit status would have to be made on a case by case basis.

To be tax-exempt an organization must be both organized and operated for one or a combination of the purposes described in paragraph 149(1)(l) of the Act. A determination of whether a TTF was operated exclusively for, and in accordance with, its non-profit purposes in a particular taxation year is based on the facts of that year and this is a matter on which we can not express an opinion since it is a question of fact. This information can be obtained only by reviewing, during the course of an audit, all of its activities for that year. Such a determination cannot be made in advance of or during a particular year but only after the end of the year.

If a TTF cannot qualify as a non-profit organization, the trust would likely be a taxable trust and, therefore, required to file a T3 Return within 90 days of the end of the trust's taxation year. Contributions or grants to a TTF from Employment and Immigration Canada would either be considered to form part of the capital of the trust and hence not subject to taxation or would be considered income to the trust (taxed under paragraph 12(1)(x) of the Act as an inducement from a government). In either case, any income earned from the capital or income base of the trust would be subject to taxation. A copy of the T3 Guide and Trust Return is enclosed which may answer additional questions in this area. You may wish to recommend that your clients ascertain whether paragraph 12(1)(x) may have application to their situation.

It is our further opinion that a taxable benefit is not enjoyed by an employee at the time of contribution to a TTF by either an employer, an employee association or by Employment and Immigration Canada. Further, it would appear unlikely that a benefit accrues to an employee at the time that an employee receives training sponsored or funded by a TTF. We believe that, in most cases, the primary beneficiary of training may be the employer rather than the employee. A definitive response may only be given on a case by case basis as obviously course objectives, content and so forth determines whether training is to primarily benefit the employer, industry in general or an individual employee.

We understand that some training trust fund agreements may contain provisions for income maintenance or support to members receiving training. Depending on the specific terms of the TTF agreement, the amount received in the members' hands may be taxed as continuing salary that is subject to the usual withholding requirements or, depending on the circumstances of the payment of income maintenance amounts, as income or a benefit from a trust.

We trust that the above comments are of assistance to you.