Principal Issues: [TaxInterpretations translation] Is a NPO with a Financial Support Agreement with HRDC required to deduct at source and issue information slips for payments made to persons with disabilities that it is assisting to enter or re-enter the labour market?
Position: Yes, the payer (NPO) must deduct at source and issue T4A slips.
Reasons: Compliance with the ITA and its Regulations
2006-020598 XXXXXXXXXX Nancy Turgeon, CGA (613) 957-2082 February 12, 2007
Dear Sir,
Subject: Obligation to withhold taxes at source and/or to issue information slips
This is in response to your letter of September 11, 2006, regarding the above subject.
Background:
- Your client is a not-for-profit organization ("NPO") whose mission is to manage and coordinate the implementation of projects and activities aimed at the labour market integration of persons with disabilities.
- Your client has entered into an agreement (the "Agreement") with the Minister of Human Resources and Skills Development Canada under the Opportunities Fund for Persons with Disabilities program. Under the Agreement, the Fund provides financial assistance to enable your client to carry out its mission.
- As part of its mission, your client provides funding to individuals with disabilities to enable them to participate in a variety of activities that support their integration into the labour market. Those sums are used in particular:
- To cover their living expenses during the activity;
- To allow the beneficiary to acquire specialized equipment to facilitate their participation;
- To cover the beneficiary's transportation and accommodation costs to participate in the activity;
- To cover the cost of registering for a course if it is part of the activity.
- Your client also provides subsidies to employers of people with disabilities whose employment in their company are part of an integration activity.
Questions:
1. Under the Income Tax Act (the "Act"), you wish to know whether your client is required to withhold amounts from the payments made as described above.
2. You wish to know whether your client is also required to prepare an information form in respect of the amounts paid.
Analysis:
The situation you have indicated in your letter appears to be related to an actual situation, which concerns a specific taxpayer. As explained in Information Circular 70-6R4, it is not the Directorate's practice to comment on proposed transactions involving specific taxpayers otherwise than in the form of an advance tax ruling. If your situation involves a specific taxpayer and a completed transaction, you should forward all relevant facts and documentation to the appropriate Tax Services Office for its views. We are, however, prepared to provide the following general comments, which you may find helpful.
Paragraph 153(1)(s) provides that withholding taxes are to be levied where amounts referred to in paragraph 56(1)(r) are paid. The latter reads as follows:
Financial assistance
(r) amounts received in the year by the taxpayer as
(i) earnings supplements provided under a project sponsored by a government or government agency in Canada to encourage individuals to obtain or keep employment,
(ii) financial assistance under a program established by the Canada Employment Insurance Commission under Part II of the Employment Insurance Act, or
(iii) financial assistance under a program that is
(A) established by a government or government agency in Canada or by an organization,
(B) similar to a program established under Part II of that Act, and
(C) the subject of an agreement between the government, government agency or organization and the Canada Employment Insurance Commission because of section 63 of that Act;
In Interpretation Bulletin IT-75R4, paragraph 37, the definition of financial support clearly sets out the type of programs involved. In light of the agreement between the Minister of Human Resources and Skills Development Canada (HRSDC) and your client, we can say that the services you provide are covered by paragraph 56(1)(r) in both structure and scope.
You will note that clause 10 of the Agreement between HRSDC and your client confirms the obligation to make source deductions and file the appropriate information slips.
The requirement to issue information slips is set out in paragraph 100(1)(h) of the Income Tax Regulations with respect to amounts required to be included under paragraph 56(1)(r). This slip must be a T4A by virtue of paragraph 200(2)(c) of the Regulations.
We hope that these comments are of assistance.
Phil Jolie
Director
Business and Partnerships Division