In today’s workforce, more employers are looking for graduates who have practical work experience in addition to their university degree. As a result, more universities and colleges are developing programs with mandatory co-op terms. Students that choose these programs not only gain practical experience but also get to see what to expect on a day to day basis if they pursue this as a career after graduating. Another benefit is that they earn a salary that can go towards their tuition, books and living expenses.
There are many benefits to the employer as well. A qualified employer gets a first glimpse at the talented students in these programs and can stay in contact with them if they see potential for full-time employment after graduating. They may also be entitled to certain tax benefits.
One such benefit available for an eligible Ontario employer is the Ontario Co-operative Education Tax Credit (CETC), which effectively reimburses the employer 25% of eligible expenditures (30% for smaller businesses) to a maximum credit of $3,000 per co-op student for each qualifying work placement. If a student is employed for a continuous work period extending beyond 4 months, additional employment periods in excess of 10 weeks may qualify as a separate qualifying work placements eligible for an additional CETC credit with a maximum of $3,000.
An employer qualifies for the 30% rate applicable for smaller businesses if they are a corporation, partnership or an individual with one or more unincorporated businesses whose total payroll in the previous taxation year was $400,000 or less. The rate is gradually reduced to 25% for businesses with payrolls between $400,000 and $600,000, and is maintained at 25% for businesses with payrolls in excess of $600,000.
Which students qualify?
For students to qualify, they must be enrolled at an eligible educational institution (i.e. most Ontario universities and/or colleges of applied arts and technology) and perform employment duties for the employer under a qualifying co-operating education program offered by their school.
A qualifying co-operative education program is a formal program designed to integrate academic studies with specific practical work experience requirements.
Which expenditures qualify?
Qualifying expenditures must be attributable to an Ontario permanent establishment (place of business) and include:
- Salaries and wages including taxable benefits paid to the student
- Fees paid to an employment agency for work placement services of a student.
What is the employer’s role?
The employer must be able to provide a qualifying work placement to the student in order to be eligible for CETC. The work placement must:
- Be developed or approved by the eligible educational institution
- Engage the student in productive work (i.e. not just observing work)
- Compensate the student for the work performed
- Ensure that the student’s performance is supervised and evaluated during the placement by the employer
- Ensure that the student’s progress is monitored by the educational institution
- Ensure that the work placement is:
- Not less than 8 months or more than 16 months for a qualifying internship program
- At least 10 weeks for all other qualifying co-operative education programs.
The tax credit is calculated and claimed in the employer’s income tax return filed for the taxation year when the work placement ends. The credit is refundable, meaning it can reduce the balance of tax payable by the employer for the fiscal year, with any excess resulting in a refund. However, the full amount of the credit is taxable, and must be reported in taxable income in the tax year in which it is received.
If you have any questions regarding how your business can benefit from the Ontario Co-operative Education Tax Credit, please do not hesitate to contact our team.
