Principal Issues: [TaxInterpretations translation] Is the Quebec government work experience credit taxable?
Position: Yes
Reasons: This is a form of assistance relating to wages. If the expenditure on wages is not reduced, the amount of the credit will be taxable pursuant to paragraph 12(1)(x).
July 4, 2007
Saint-John (NB)Tax Services Office Headquarters
Business window Income Tax Rulings Directorate
Attention: Ms. Mélanie Gaudet Michel Lambert, CA, M.Fisc.
(613) 957-89682007-023839
Quebec tax credit for on-the-job training
This is further to your email of May 30, 2007, asking whether the tax credit for an on-the-job training period (the "Tax Credit") is taxable under the Act.
Unless otherwise indicated, all statutory references herein are to provisions of the Income Tax Act (the "Act").
The Tax Credit is granted under section 1029.8.33.6 of the Taxation Act. The first paragraph of this section reads as follows:
An eligible taxpayer who makes a qualified expenditure in a taxation year and encloses, with his fiscal return he is required to file for the year under section 1000, the prescribed form containing the prescribed information is deemed, subject to the second paragraph, to have paid to the Minister on the taxpayer's balance-due day for that year, as partial payment of his tax payable for that year pursuant to this Part, an amount equal to 15 % of the amount of the expenditure.
A qualified expenditure is defined in section 1029.8.33.2 of the Taxation Act and refers to section 1029.8.33.3 of that Act. Briefly, it is a reasonable expense related to a business of a taxpayer or a partnership. This expense is calculated on the basis of the number of hours worked by persons in the business.
We are of the view that the Tax Credit granted to a taxpayer is an amount received by the taxpayer from a government while earning income from a business as an incentive payment or as assistance with salary expenses.
A taxpayer must include, inter alia, in computing income from a business or property pursuant to paragraph 12(1)(x), inducements and assistance received from a government to the extent that they are not described in subparagraphs 12(1)(x)(v) to (viii). Subparagraph 12(1)(x)(v) provides that paragraph 12(1)(x) does not apply to an amount that is already included in computing the taxpayer's income or deducted in computing, for the purposes of the Act, any balance of undeducted outlays, expenses or other amounts, for the year or a preceding taxation year. This could occur as a result of an inclusion made under subsection 9(1).
The Tax Credit may also be granted to members of a partnership under section 1029.8.33.7 of the Taxation Act. That section is similar to section 1029.8.33.6 of that Act. However, the credit is granted to the partners. Subsection 12(2.1) deems the amount received by a partner to be received by the partnership for the purposes of paragraph 12(1)(x).
In our view, if the wage expense is not reduced in computing the income of the taxpayer receiving the tax credit or of the partnership, as the case may be, or if the amount of the tax credit is not included in their income otherwise determined, the amount of the credit will be required to be added to the taxpayer's income pursuant to paragraph 12(1)(x) or, as the case may be, to the partnership's income pursuant to paragraph 12(1)(x) and subsection 12(2.1).
To establish when the tax credit should be recognized for income tax purposes, we refer you to Income Tax Technical News, No. 29, which states the following:
We are now of the opinion that 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:
- when it reduces the tax payable for a taxation year, or
- when it is paid, if it allows for or increases a tax refund.
We hope that these comments are of assistance.
Manager
Financial Sector and Exempt Entities Section
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.