Section 127.46

Where a clean economy incentive claimant has claimed a specified tax credit at the “regular tax credit rate” (i.e., 10% higher than the (unenhanced) “reduced tax credit rate”) but is unable to substantiate having met the “Compensation Requirement” (respecting meeting (union-rate) prevailing wages) for covered workers employed by others, such as a third-party contractor, would CRA seek to apply the gross negligence penalty under s. 127.46(9)?

CRA indicated that the mere fact that a claimant is not able to demonstrate that covered workers employed by others were compensated in accordance with the Compensation Requirement would not, by itself, support a finding that the claimant knowingly or negligently failed to meet the prevailing-wage requirement. However, to access the regular tax credit rate, a claimant who uses a contractor must be able to show that it took reasonable steps to ensure compliance with the Compensation Requirement. If no reasonable steps were taken, the claimant, by claiming at the regular rate, would run the risk of a determination that it knowingly or, in circumstances amounting to gross negligence, failed to meet the prevailing-wage requirement.

Following a CRA audit, an incentive claimant was required pursuant to s. 127.46(11) to pay a top-up amount under s. 127.46(12) in respect of a non-unionized covered worker.

Could the top-up amount could be paid in the form of additional paid vacation time off (rather than being settled in cash) and, if so, when would the top-up amount be considered to be paid?

CRA indicated that an amount can be “paid” if settled otherwise than in cash and, that here, the incentive claimant could pay the top-up amount in the form of additional paid vacation time, provided this occurred within the period set out in s. 127.46(11) and in accordance with prevailing wages under s. 127.46(3)(b)(i)(B). Furthermore, given that additional vacation pay is a benefit that can be valued in monetary terms, the incentive claimant could satisfy the top-up amount by granting the covered worker additional paid days off (i.e., additional vacation days). In light of s. 127.46(14), the top-up amount would be deemed to be salary or wages for source-deduction purposes and would be deductible in computing the income of the incentive claimant in the year paid. Where paid in the form of the covered worker taking additional vacation days, it would be considered to be paid on those days rather than when the vacation day credit was granted.

Any year-end accrual for the top-up amount would be deductible by the incentive claimant in computing its taxable income only when paid to the covered worker, pursuant to s. 18(1)(t)(i) and s. 127.46(14)(a)(ii).

An incentive claimant with a (clean economy) “specified property” project was required to pay a “top-up amount” under s. 127.46(12) after CRA on audit determined that a non-unionized covered worker had been paid less than the prevailing union wage level as articulated in s. 127.46(3)(b)(i)(B).

CRA indicated that the top-up amount could be “paid” in the form of the covered worker taking additional vacation days. In light of s. 127.46(14), the top-up amount would be deemed to be salary or wages for source-deduction purposes and would be deductible in computing the income of the incentive claimant in the year paid., The payment would be considered to occur (e.g., for payroll source deduction purposes) when those vacation days were taken rather than when the vacation day credit was granted.

Any year-end accrual for the top-up amount would be deductible by the incentive claimant in computing its taxable income only when paid to the covered worker, pursuant to s. 18(1)(t)(i) and s. 127.46(14)(a)(ii).