Principal Issues: [TaxInterpretations translation] (1) What is the tax treatment of amounts paid under the program "Alternative jeunesse" ["Youth Alternative" program] of the Ministère de l'emploi et de la solidarité sociale du Québec?
(2) Must these amounts be entered on the T5007 form?
Position: (1) These amounts - the youth allowance and amounts reimbursed to program participants - are social assistance benefits taxable under paragraph 56(1)(u) of the Income Tax Act and deductible in computing taxable income under paragraph 110(1)(f).
(2) The T5007 form must be completed for both the youth allowance and some of the reimbursed amounts.
Reasons: The Income Tax Act.
Mr. Daniel Beaudoin Program Officer Individual Returns and Payments Processing Directorate 2006-020816 Place Poste Canada 750 Heron Road Ottawa ON K1A 0L5
October 3, 2006
Dear Sir,
Subject: Request for technical interpretation - amounts received under the "Alternative jeunesse" [“Youth Alternative”] program pilot project
This letter is in response to the fax you sent us on July 27, 2006, concerning the "Alternative jeunesse" ["Youth Alternative"] program established, pending the entry into force of the Individual and Family Assistance Act1 , pursuant to the Act respecting the Ministère de l'Emploi et de la Solidarité Sociale and establishing the Commission des partenaires du marché du travail2. You wish to obtain our opinion on the tax treatment to be accorded to payments made under this program and on the requirements for recording those amounts in the appropriate federal statements.
Background
The "Alternative jeunesse" program, through a pilot project carried out in certain regions of Quebec, is aimed at young adults under the age of 25 who wish to undertake a socio-professional reintegration process. Through its adaptive approach and its financial assistance program, the "Alternative jeunesse" program aims to enable those young adults to reintegrate into the labour market. It is expected that the program will be in effect throughout Quebec commencing April 1, 2007.
In order to achieve those objectives, the program wishes to implement the following main elements:
- A tailored approach to young adults under 25 years of age;
- The payment of financial assistance to participants who voluntarily commit to an intervention plan;
- Support in line with the needs of the participants;
- Consultation mechanisms in the development of services for young adults.
In order to be eligible for the "Alternative Youth" program, an adult must meet the following requirements. The individual:
1. must have submitted an application for last-resort financial assistance and be eligible or already a beneficiary of the employment assistance program administered by the Ministère de l'emploi et de la solidarité sociale ("MESS");
2. must be under 25 years of age when agreeing to participate in the program;
3. must be capable of undertaking a process that will lead him/her to integrate into the labour market; and
4. must be ready to engage voluntarily in the activities to in the intervention plan.
The Employment Assistance Program is a program administered by the MESS to provide last-resort financial assistance to Quebec residents.
Eligibility for the basic benefit of the employment assistance program depends on three factors:
(1) The individual's resources, which must be equal to or less than the amounts set by the Quebec Income Support Regulation;
(2) The claimant must be a resident of Quebec; and
(3) The claimant must be over 18 years of age or, if not, have been married or have a dependent child.
As part of the "Alternative jeunesse" pilot project, a youth allowance is paid to participants for the duration of their intervention plan. Replacing the employment assistance benefit, the youth allowance - amounting to $135 per week per individual and $160 per week per single-parent family - is intended to cover, in whole or in part, the living expenses of these young adults.
In addition to the youth allowance, the "Alternative jeunesse" program also provides for the reimbursement of certain expenses - in particular childcare, transport, schooling, training and out-of-home expenses, as well as occasional travel expenses - which the participant cannot pay because of insufficient financial resources and which are necessary for the implementation of his or her intervention plan.
Question
Your question concerns the tax treatment of the above-mentioned amounts and how the MESS should report them on the relevant tax statement(s).
Analysis
(1) Tax treatment of youth allowance and reimbursement of expenses
In this case, we are of the view that the applicable provision of the Income Tax Act (the "Act") is paragraph 56(1)(u), which reads as follows
56 (1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year,
[…]
(u) a social assistance payment made on the basis of a means, needs or income test [...], except to the extent that the payment is otherwise required to be included in computing the income for a taxation year […]
On February 21, 2006, the Canada Revenue Agency's ("CRA") Income Tax Rulings Directorate issued Technical Interpretation 2006-0169341I73 which held that the basic benefit of the employment assistance program and the support allowance paid under the MESS "Devenir" [Becoming] program constituted social assistance benefits for purposes of paragraph 56(1)(u). It was found in particular that those benefits were paid following a means, needs and income test.
With respect to the reimbursement of expenses under the "Devenir" program, the CRA determined that those reimbursements were also amounts received as social assistance benefits based on a needs test of the recipient paid under a government assistance program.
In this case, we believe that the same conclusions apply. The youth allowance is paid to a participant in the "Alternative jeunesse" program as a replacement for the basic employment assistance benefit. Since the latter is paid following an examination of the participant's needs, resources and income, it is clear that the youth allowance constitutes a social assistance benefit under paragraph 56(1)(u).
Similarly, the reimbursement of expenses incurred by a participant under this program is only made if it is established that the participant does not have sufficient financial resources to meet those expenses. Thus, the amounts reimbursed must, in our opinion, be included in the income of the participants in the "Alternative Jeunesse" program under the terms of the above paragraph.
While participants in the Alternative Youth program must include those amounts in their income under paragraph 56(1)(u), it should be noted that they can also benefit from an offsetting deduction under paragraph 110(1)(f) so that those amounts are not taxed.
Recording of amounts on federal statements
Subsection 233(1) of the Income Tax Regulations ("ITR") requires every person who pays a benefit described in paragraph 56(1)(u) of the Act to make an information return (Form T5007) in respect of the payment, except for an amount described in subsection 233(2) of the ITR.
Thus, we are of the view that the MESS will be required to complete the T5007 form for the amounts paid to participants in the "Alternative jeunesse" program as a youth allowance and for the amounts paid as reimbursements of expenses incurred by participants, excluding reimbursements attributable to the following amounts:
- Reimbursement of childcare costs incurred by the program participant;
- Amounts reimbursed for the participant's training or career counselling;
- Any other reimbursements that are not part of a series of payments.4
We hope that our comments are of assistance.
Best regards,
François D. Bordeleau, LL.B.
Individuals, Business and Partnerships Section
Income Tax Rulings Directorate
Encl.
ENDNOTES
1 S.Q. 2005, c.15
2 R.S.Q. c. M-15.001
3 A copy of that technical interpretation is attached to this letter.
4 Subsection 233(2) of the ITR stipulates that these types of expenses are not to be included on the T5007 form.