2014-0545001I7 Grants paid to employers of reservists

Principal Issues: What is the income tax treatment of amounts that are received from the Compensation for Employers of Reservists Program by employers of reservists and self-employedindividuals where the sole proprietorship is a reservist and is there a requirement by the administrator of this program to prepare an information slip (i.e., T4A)?

Position: This amount would be included in income pursuant to section 9 of the Act XXXXXXXXXX.

Reasons: See analysis.

Author: D'Angelo, Sandro
Section: 9(1), 12(1)(x), 153(1), ITR 200(1)

XXXXXXXXXX
                                                                                                                                                 2014-054500
                                                                                                                                                 S. D’Angelo

September 15, 2014

Dear XXXXXXXXXX:

Re: Compensation for Employers of Reservists Program

This is in reply to your correspondence of September 4, 2014 and our telephone conversation (D’Angelo/XXXXXXXXXX) of September 8, 2014, wherein you requested our view on the income tax treatment of amounts that are received by employers of reservists and self-employed individuals (where the self-employed individual is a reservist) under the Compensation for Employers of Reservists Program (“CERP”).

Briefly, it is our understanding that the amounts to be paid to an eligible employer or eligible self-employed reservists under the CERP are intended to provide a means to offset the financial costs civilian employers often undertake when a reservist deploys for military duty.  These costs may include the hiring and training of replacement workers and increased overtime hours for existing employees or the purchasing of equipment; however, there is no restriction on how a recipient uses the amount it received under the CERP.  CERP, XXXXXXXXXX was created from a Budget 2012 Economic Action Plan initiative.

You want to know whether amounts that are received by the eligible employers and eligible self-employed reservists under CERP would be taxable XXXXXXXXXX.

Our Comments

Generally, the tax treatment of government assistance that is received in the course of earning income from a business or property is determined by the application of well-accepted business principles.  The application of well-accepted business principles for the purpose of calculating profit or loss under section 9 of the Act commonly requires the cost of an asset or the amount of an expense to be reduced by any reimbursement or similar payment that relates to the acquisition of the asset or the expense incurred.  If the application of well-accepted business principles does not require the government assistance to be included in income or to reduce the cost or capital cost of a property or the amount deductible as an expense, a specific provision of the Act, such as paragraph 12(1)(x), may apply to require the amount to be included in income.  Interpretation Bulletin IT-273R2, “Government Assistance – General Comments” discusses the tax treatment of inducements and other forms of government assistance received by a taxpayer in the course of earning income from a business or property.

Based on the above, the amount paid by XXXXXXXXXX to an eligible employer or eligible self-employed reservist under the CERP would be included in the recipient’s income pursuant to section 9 of Act.  However, if for some reason section 9 did not apply (and we have no reason to believe it would not in this situation) the amount would otherwise be included in the recipient’s income in accordance with paragraph 12(1)(x) of the Act.  XXXXXXXXXX.

We trust our comments will be of assistance.

Yours truly

Michael Cooke, C.P.A., C.A.
Manager
Business Income and Capital Transaction Section
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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