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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: Follow-up inquiry to 2003-000491, the employer is proposing to add an additional amount to an amount received under a government sponsored and funded bursary program. The issue is whether this additional amount is employment income under subsection 5(1) or is also considered bursary income under paragraph 56(1)(n).
Position: Employment income under subsection 5(1).
Reasons: This additional amount is not received under the government sponsored and funded bursary program. It is an initiative funded and sponsored by the employer.
July 30, 2003
Appeals Division Income Tax Rulings Directorate
Halifax Tax Services Office Randy Hewlett, B.Comm
613-957-8973
Attention: Mr. Angus MacIsaac
2003-002771
XXXXXXXXXX (the "Employer")
Nursing Bursary Program (the "Program") .
This is in response to your correspondence dated July 3, 2003, wherein you inquired further with respect to our letter to you on the above-noted issue, dated March 17, 2003 (our file 2003-000491).
In your initial inquiry, the issue was whether payments made to recipients under the Program, which was sponsored by the Province of New Brunswick (the "Province"), constituted employment income under subsection 5(1) of the Income Tax Act (the "Act") or bursary income under paragraph 56(1)(n). The facts in your initial inquiry may be summarized as follows:
1. The Program was set up by the Province to encourage nurse and practical nurse graduates ("candidates") to pursue their careers in New Brunswick, particularly in hard-to-recruit areas. The Province approved a bursary program of $165,000 for 2002-2003, which employers could use to recruit potential candidates.
2. To qualify for this financial assistance, candidates had to enter into a return-of-service agreement, which is essentially a permanent employment contract for a specified term.
3. The Program for 2002-2003 provided an allocation of up to $5,000 to at least 33 candidates. Employers could apply for financial assistance to recover up to $5,000 for a candidate who:
a. Enrolled in a University Nursing Program or a New Brunswick Community College Practical Nurses Program and completed at least half of the program requirements at the time of the application;
b. Accepted an offer for permanent employment from a Regional Health Authority or a Licensed Nursing Home as a registered nurse or a licensed practical nurse; and
c. Agreed to sign a return-of service agreement with the sponsoring employer for one to three years according to the amount of the bursary.
4. For nurses, a return-of-service agreement had to be signed according to the following scale: $1,500 for 1 year of permanent employment, $3,000 for 2 years of permanent employment, and $5,000 for 3 years of permanent employment.
5. For practical nurses, a return-of-service agreement had to be signed according to the following scale: $1,000 for 1 year of permanent employment, $2,000 for 2 years of permanent employment, and $3,000 for 3 years of permanent employment.
6. Requests for financial assistance from employers (i.e. Licensed Nursing Homes and/or Regional Health Authorities) required approval from the Department of Health and Wellness. Once the bursary was approved, a return-of-service agreement signed by the employer and the candidate had to be sent to the Department of Health and Wellness by March 15, 2003.
7. Payment of the bursary by employers was contingent on receipt of the Program funds from the Department of Health and Wellness. Candidates were not contractually bound under a return-of-service agreement unless the employer received and provided funding under the Program.
8. Should a candidate fail to complete the term of employment, a percentage of the bursary equal to the percentage of the term of employment not completed, is immediately due and payable to the Department of Health and Wellness by the candidate, including interest at the rate of prime plus 1% charged from the date the candidate received the bursary.
In our response to your initial inquiry, we indicated that it was our view that a payment made to a candidate under the Program constituted a bursary in the year of receipt for the purposes of paragraph 56(1)(n) of the Act. The basis of our opinion was that the Program was both government sponsored and funded, and was clearly designed as a bursary program by the Province.
In your follow-up inquiry, you indicated that the Employer is proposing to offer an additional $XXXXXXXXXX of its own funds to nurses who agree to sign a return-of-service agreement for four years. You inquired whether this additional amount is employment income under subsection 5(1) of the Act or bursary income under paragraph 56(1)(n).
In our view, the additional $XXXXXXXXXX that the Employer provides to nurses is employment income under subsection 5(1) of the Act. We do not view the amount as a bursary for purposes of subsection 56(1)(n) of the Act. Unlike the amounts described in your initial inquiry that were received under a bursary program sponsored and funded by the Province, the $XXXXXXXXXX will be received as a result of an initiative directly sponsored and funded by the Employer. Accordingly, we are of the view that the amount is remuneration for purposes of subsection 5(1) of the Act, and for greater certainty, we are of the view that subsection 6(3) applies to deem it to be employment income. As a result, the Employer is subject to withholding requirements pursuant to paragraph 153(1) of the Act on the $XXXXXXXXXX amount it pays to nurses.
We trust our comments are of assistance.
For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Customs and Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the electronic library version, or they may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Mrs. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.
John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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