2014-0522541E5 Application of 12(1)(x)

Principal Issues: Whether the federal apprenticeship job creation tax credit (“AJCTC”) and the Ontario apprenticeship training tax credit (“ATTC”) should be included in income under paragraph 12(1)(x)?

Position: The AJCTC is generally included in income under paragraph 12(1)(t). The ATTC is generally included in income under paragraph 12(1)(x).

Reasons: AJCTC is included under 12(1)(t); no exceptions apply to ATTC

Author: Friedlander, Lara G.
Section: 12(1)(x), 12(1)(t), 127(5), 127(11.1)(c.4), 127(19), 43.13 of Ontario Corporations Tax Act

XXXXXXXXXX                                                                                                                              2014-052254
                                                                                                                                                      L. Friedlander

August 15, 2014

Dear XXXXXXXXXX:

Re:  Apprenticeship job creation tax credits

This is in response to your email of February 24, 2014 concerning the federal and Ontario apprenticeship job creation tax credits.

In particular, you have asked whether paragraph 12(1)(x) of the Income Tax Act (the “Act”) would apply to these tax credits. You also ask us to clarify in which year the income inclusion for these tax credits would be required.

Our Comments

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.  Also, where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. Nonetheless, we have provided some general comments below.  

Federal and provincial tax credits and deductions from tax which are in the nature of inducements, or which are received as assistance in respect of the cost of property or an expense, are included in income under paragraph 12(1)(x) of the Act in the year received unless an exception applies. 

The federal apprenticeship job creation tax credit (the “AJCTC”) is a component of the investment tax credit available under subsection 127(5) of the Act.  The AJCTC is generally included in income under paragraph 12(1)(t) of the Act.  Paragraph 12(1)(t) generally requires a taxpayer to include in income an amount deducted in a preceding taxation year under subsection 127(5) or (6) of the Act (relating to investment tax credits) in respect of a property acquired or an expenditure made in a preceding taxation year.  If an amount is included in income under paragraph 12(1)(t) of the Act in a taxation year, it is not included in income under paragraph 12(1)(x) of the Act for that year or a later taxation year.

Section 43.13 of the Corporations Tax Act (Ontario) (the “OCTA”) provides that the Ontario apprenticeship training tax credit (the “ATTC”) is deductible from Ontario tax otherwise payable.  The ATTC would generally be included in income under paragraph 12(1)(x) of the Act. 

You have also asked for our comments regarding the timing of the receipt of a tax credit for purposes of paragraph 12(1)(x) of the Act. Income Tax Technical News (“ITTN”) No. 29 provides as follows:

…a tax credit or a reduction in the tax calculation is considered to be received at the earliest of:

-     when the amount is applied as a reduction of instalment payments to be paid by the taxpayer, if it is credited to his instalment account by the fiscal authorities; or

-     when all the conditions for its receipt are met, at the earliest of:
o       when it reduces the tax payable for a taxation year, or
o       when it is paid, if it allows for or increases a tax refund.

In Rulings document 2004-0072241 dated July 14, 2004, the CRA considered the date of receipt of a British Columbia investment tax credit.  Under the relevant provincial statute, the investment tax credit was deemed to be paid on the “balance due day” for the relevant tax year.  In that particular case, the investment tax credit was received in respect of the 2002 taxation year and the balance due day was March 31, 2003.  The CRA confirmed that, if the relevant tax return was filed on the balance due day, the conditions for receipt have been met on that day. If the taxpayer were to file its tax return before that time, the conditions for receipt would be met when the tax return was filed.

In view of the above, it is our view that the reduction of tax payable pursuant to section 43.13 of the OCTA would occur in the taxation year after the taxation year in which the ATTC was used.

We trust that these comments will be of assistance.

Yours truly,

G. Moore
For Director
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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