Principal Issues: [TaxInterpretations translation]
1. Are location incentives paid to medical practitioners under programs set up by the Quebec government, to encourage medical practitioners to establish, in remote areas taxable?
Position:
1. Yes
Reasons:
Application of paragraph 12(1)(x) of the Act
IT-273R2
Application of section 6
2005-015393 XXXXXXXXXX A. Dagenais, Advocate, M.Fisc. (613) 957-2121 February 17, 2006
Dear Madam,
This is in response to your document faxed on September 14, 2005 to Revenu Québec, Tax Legislation Branch. Since this request was regarding federal taxation of these premiums, they advised the officer in charge of the file that the request had been transferred to us on September 28, 2005.
Unless otherwise indicated, all statutory references herein are to provisions of the Income Tax Act (the "Act").
Your analysis:
You stated that representatives of certain regions are of the opinion that the location incentive program for medical practitioners setting up in designated territories is not taxable.
Our Comments:
As stated in paragraph 22 of Information Circular 70-6R5 dated May 17, 2002, it is the practice of the Canada Revenue Agency (the "CRA") not to issue written opinions on proposed transactions other than by way of advance rulings. Furthermore, when it comes to determining whether a completed transaction has received appropriate tax treatment, that determination is made first by our Tax Services Offices as a result of their review of all facts and documents, which is usually performed as part of an audit engagement. However, we can offer the following general comments that we hope may be helpful to you. These comments may, however, under certain circumstances, not apply to your particular situation.
Non-salaried medical practitioners
With respect to self-employed medical practitioners, the Act provides general statutory provisions indicating certain items that must be included in computing the income from a business. Subsection 12(1) sets out most of the items to be included in computing the income from a business. Paragraph 12(1)(x) specifically addresses inducement and other payments. The CRA also issues Interpretation Bulletins to provide technical interpretations and positions on certain provisions of the Income Tax Act.
Interpretation Bulletin IT-273R2 discusses the tax treatment of forms of government assistance received by a taxpayer in a year in which the taxpayer earns income from a business or property. That financial assistance may be provided as an incentive payment (e.g., to encourage employment, to reduce the production of certain inventories, such as fish or commodities) or as a result of government action other than expropriation (e.g., an order to destroy certain capital assets or inventories owned by the taxpayer, such as diseased animals) or in respect of the loss of income or property as a result of a disaster (e.g., flood, frost or explosion).
Issue 23 of the Bulletin deals specifically with "Inducements to Medical Practitioners" and reads as follows:
“Government organizations may provide financial incentives to recruit health care professionals to practice in designated underserviced areas. Such grants are included in income under paragraph 12(1)(x) when none of the exceptions described in ¶ 8 applies.”
In view of the foregoing, it is our opinion that signing bonuses paid to physicians under programs established by the Government of Quebec to encourage physicians to establish in remote areas are taxable to physicians who carry on a medical practice in a designated area. Those amounts are not covered by the exceptions to the income inclusion requirement in paragraph 12(1)(x). Thus, those bonus amounts are taxable as business income.
Salaried medical practitioners
With respect to salaried medical practitioners, the location incentives paid to medical practitioners under the programs put in place by the Quebec government to encourage medical practitioners to establish in remote areas are also taxable to medical practitioners who practice their profession exclusively as employees. They will thus be taxable as income from office and employment pursuant to paragraph 6(1)(a) since the incentives come directly from the employer. For that reason, the incentives are considered to be received by virtue of the physician’s employment.
We hope that these comments are of assistance. Should you require additional information regarding the content of this document, please do not hesitate to contact us.
Finally, we regret the delay in responding to your request. Please accept our apologies.
Best regards,
Phil Jolie
Director
Business and Partnerships Division
Income Tax Rulings Directorate