2023-0969381E5 XXXXXXXXXX – Allowance

Principal Issues: The tax treatment and reporting requirements of allowance payments from the XXXXXXXXXX to recruits.

Position: Depends on whether an employment relationship exists. If an employment relationship exists, the allowance would be considered income from employment under paragraph 6(1)(b) of the Act. If no employment relationship exists, the allowance would be included in the recruit’s income pursuant to paragraph 56(1)(n) of the Act, to the extent the amount exceeds the scholarship exemption. Under subsection 200(2) of the Income Tax Regulations, every payer of a research grant, scholarship, fellowship, bursary or prize (other than a prescribed prize) must report the amount on a T4A Slip, Statement of Pension, Retirement, Annuity and Other Income.

Reasons: If an employment relationship exists, the allowance does not appear to fall within any of the exceptions listed in subparagraphs 6(1)(b)(i) to (ix) of the Act. If an employment relationship does not exist, the allowance appears to be financial assistance paid to enable a student to pursue his or her education.

Author: Brennan, Christopher
Section: 5(1); 6(1)(a); 6(1)(b); 56(1)(n); ITR 200(1)

XXXXXXXXXX                                                              2023-096938
                                                                                      Chris Brennan CPA, CA

August 9, 2024

Dear XXXXXXXXXX:

Re: Training Allowance

We are writing in response to the email from your directorate dated March 24, 2023, in which we were asked about the tax treatment and reporting requirements for the training allowance payments received by recruits from the XXXXXXXXXX under the Income Tax Act (the Act). We apologize for the delay of our response.

It is our understanding that the XXXXXXXXXX currently pays a training allowance of $125 per week plus accommodations and meals to recruits that attend the XXXXXXXXXX Training Program (XXXXXXXXXX). The XXXXXXXXXX is considering increasing the amount of the training allowance to $400 per week. These weekly allowance payments received by recruits are to cover basic living expenses while attending XXXXXXXXXX training program. A recruit will receive a cheque for the allowance from the XXXXXXXXXX College Finance team while attending training. Your directorate has asked for our comments on how the XXXXXXXXXX should report the allowance payments.

Our Comments

This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R12, Advance Income Tax Rulings and Technical Interpretations.

It is our understanding that it is XXXXXXXXXX assertion that an employment relationship does not exist between the XXXXXXXXXX and the recruit, while they are attending XXXXXXXXXX. It is a question of fact as to whether an employment relationship exists between the XXXXXXXXXX and the recruits attending the XXXXXXXXXX.

Where it is determined that the facts support the existence of an employment relationship, the training allowance would be included in employment income. Paragraph 6(1)(b) of the Act requires that all amounts received by an employee as an allowance for personal or living expenses to be included in income, unless the allowance falls within one of the exceptions listed in subparagraphs 6(1)(b)(i) to (ix) of the Act. As none of the exceptions in these subparagraphs apply to the training allowance, the allowance is included in the employee’s income under paragraph 6(1)(b) of the Act.

Consequently, the allowances paid must be reported on a T4 slip, Statement of Remuneration Paid, and are subject to income tax withholdings under subsection 153(1) of the Act. If the employment is pensionable for Canada Pension Plan (CPP) purposes and/or insurable for Employment Insurance (EI) purposes, deductions for CPP contributions and/or EI premiums would also be required.

If no employment relationship exists between the XXXXXXXXXX and a recruit, the training allowance would likely be considered a bursary. The term bursary is not defined in the Act, however, its meaning is broad enough to encompass almost any form of financial assistance paid to enable a student to pursue their education. Under paragraph 56(1)(n) of the Act, scholarships, fellowships, bursaries and similar prizes received by a taxpayer are included in income in the year of receipt, to the extent that the amount received exceeds the recipient’s scholarship exemption for the year.

Under subsection 200(2) of the Regulations, every payer of a scholarship or bursary must report the amount on a T4A Slip, Statement of Pension, Retirement, Annuity and Other Income (T4A Slip). The payer of a scholarship or bursary must report the full amount on a T4A Slip, even though the recipient may be entitled to exclude all or a portion of the amount from income because of the scholarship exemption. It is the responsibility of the recipient to determine the amount of their scholarship exemption.

We trust these comments will be of assistance to you.

Yours truly,

Eric Wirag CPA, CMA
Manager, Tax Credits and Ministerial Issues
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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