Introduction
In an effort to boost hiring in trades, the federal government and some provinces offer apprenticeship-related tax credits and grants to qualified businesses and individuals.
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Ottawa, for example, offers to businesses a non-refundable tax credit equal to 10 percent of eligible apprenticeship salaries and wages, to a maximum of credit of $2,000 for each apprentice. Employers can carry unused credits back three years or forward 20 years.
To qualify for the Apprenticeship Job Creation Tax Credit, employers must pay salaries and wages to eligible apprentices for work performed in Canada in the tax year and during the first 24 months of the apprenticeship. The credit does not cover compensation based on profits, bonuses, and taxable benefits including stock options and certain unpaid remuneration.
An eligible apprentice is one who is in a Red Seal trade in the first two years of an apprenticeship contract that is registered with a federal, provincial or territorial government. The contract must also be part of a program aimed at certifying or licensing individuals in the specified trade.
In addition, the federal government provides grants to eligible apprentices in Red Seal trades. The Apprenticeship Incentive Grant totals $1,000 a year. (See comment below on Red Seal Program.)
To qualify for the grant, an apprentice must have successfully completed the first or second year in a Red Seal apprenticeship program. The $1,000 grant is added to the apprentice’s taxable income in the year it is received.
Generally, grant applications must be filed by June 30 following the year of the apprenticeship.
On the provincial level there are also tax credits and grants available to both employers and apprentices. For example, British Columbia offers tax credits and grants for non-Red Seal apprenticeship programs that the province recognizes, as well as the third and fourth year of Red Seal program apprenticeships.
British Columbia employers can claim a provincial tax credit of 10% of wages up to $2,000 for wages paid to apprentices in Non Red Seal trades, and of 15% of wages paid to third and fourth year Red Seal trades apprentices, up to a maximum of $2,500 for third year and $3,000 for fourth year apprentices.
Apprentices may be eligible for a $1,000 tax credit a year for the first two years of an eligible program in certain provincially recognized Non Red Seal trades, as well as the third and fourth years of Red Seal Trade apprenticeships.
Enhanced credits equal to an additional 50 per cent of the regular credits are available to First Nations and disabled persons.
A Brief On Red Seal Apprenticeships
The national Red Seal program was established 45 years ago to encourage the standardization of provincial and territorial apprenticeship training, certification and licensing.
There are 49 Red Seal Trades that range from appliance service technicians to cooks and cabinetmakers, hairstylists, ironworkers, industrial technicians, plumbers, roofers, tile setters and welders.
Basically an apprenticeship is an agreement between an individual who wants to learn a trade and an employer who needs a skilled worker. Apprenticeships provide on-the-job experience with technical classroom training to produce a certified journeyperson.
For some apprentices, especially in Quebec, the technical classroom training can be taken upfront through the secondary school system, followed by successive years of on-the-job training. On average, 80 per cent of an apprentice’s two-to-five year program is spent in the workplace, with the remainder of the time at a training institution.
Canada currently has 13 different apprenticeship systems, where each province and territory governs its own training and certification policies.
Conclusion
Joe Truscott has been in public practice for over 30 years and has been advising his clients on apprenticeship tax credits and various other personal and corporate income tax matters.
If you would like to engage Joe Truscott with respect to the above matter or any other income tax matters, please contact Joseph A. Truscott, Chartered Accountant at 905-528-0234 ext: 224, or email Joe at [email protected].
December 2012
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