Co-operative education tax credit

Read how Ontario businesses that hire students enrolled in co-operative education programs at Ontario colleges or universities are eligible for the tax credit.

Overview

The Co-operative education tax credit helps encourage Ontario businesses to provide experiential learning opportunities and hands-on job experience to post-secondary students through co-op work placements. The 25-30% refundable tax credit is available to Ontario businesses that hire students enrolled in a post-secondary co-operative education program. The maximum credit for each work placement is $3,000.

Note: The Co-operative education tax credit is legislated under section 88 of the Taxation Act, 2007. Please consult the legislation for complete details.

Eligibility

Eligible employer

Eligible employers include all corporations or unincorporated businesses with permanent establishments in Ontario subject to Ontario corporate income tax or Ontario personal income tax.

Members of a partnership (other than a limited partner) may share the credit for each qualifying work placement.

If an eligible student has consecutive work placements with two or more associated corporations, the associated corporations will be considered to be one employer for the purposes of claiming this credit. The associated corporations must designate which corporation will claim the qualifying work placements.

Qualifying work placement

To qualify, a work placement must be for a student who is enrolled at an eligible educational institution performing employment duties for an eligible employer under a qualifying co‑operative education program offered by the institution.

A qualifying work placement must meet all of the following conditions:

• the work placement is developed or approved by the eligible educational institution,
• the student is engaged in productive work during the work placement and is not just an observer,
• the work placement is either:
  • at least 10 consecutive weeks for qualifying co‑operative education programs other than an internship program, or
  • not less than eight consecutive months but no more than sixteen consecutive months for a qualifying internship program,
• the student is paid for the work performed during the work placement,
• the employer supervises and evaluates the student's job performance during the work placement, and
• the educational institution monitors the student's progress in the work placement.

Qualifying co‑operative education program

A qualifying co-operative education program is an educational program or course of study that formally integrates students' academic studies with work placements and meets the requirements below. These requirements generally parallel the requirements established by the Co-operative Education and Work‑Integrated Learning Canada (CEWIL Canada) for cooperative education programs.

• For a co-operative education program other than an internship program:
  • each work placement must be at least 10 consecutive weeks,
  • the total time spent in mandatory work placement(s) must be at least 30% but not more than 75% of the total time spent in required academic study, and
  • at least half of the work placement(s) must be mandatory.

• For a co-operative education program that is an internship program:
  • there must be an optional work placement of at least eight but not more than 16 consecutive months, and
  • the total time spent in the work placement must be at least 30% but not more than 75% of the time spent in required academic study.
     
• All optional work placements must be completed before the start of the final academic term and must be recorded in the student's transcripts.
   
• The co-operative educational program provides credit towards a post‑secondary degree, diploma or certificate granted by an eligible educational institution.

An eligible educational institution must keep proper documentation to prove that the programs meet the above requirements.

Eligible educational institution

The following are eligible education institutions for purposes of a qualifying co‑operative education program:

• A university or college of applied arts and technology in Ontario whose enrolment is counted for the purposes of calculating annual operating grants entitlements from the Government of Ontario
• The Michener Institute of Applied Health Sciences
• The Ontario College of Art and Design
• Redeemer University College

Eligible expenditure

The following expenditures made by a business in respect of a qualifying work placement are eligible, provided the amount of the expenditure is reasonable:

• Salaries and wages including taxable benefits (the amounts reported on the T‑4 slip) paid or payable to the student for the work placement. The student's salary must be attributable to an Ontario permanent establishment (place of business).
• Fees paid or payable to an employment agency for the work placement for services of a student carried out primarily at an Ontario place of business.

Government assistance received by the business for the work placement will reduce the amount of the expenditure eligible for the credit. Government assistance means assistance in any form from any level of government including municipalities or other public authorities. Assistance can include a grant, subsidy, forgivable loan, deduction from tax or investment allowance, but does not include the following:

• An Ontario research and development tax credit deduction under
  section 39 of the Taxation Act, 2007 (TA)
• A qualifying environmental trust tax credit under section 87 of the TA
• A co‑operative education tax credit under section 88 of the TA
• An apprenticeship training tax credit under section 89 of the TA
• An Ontario computer animation and special effects tax credit under section 90 of the TA
• An Ontario film and television tax credit under section 91 of the TA
• An Ontario production services tax credit under section 92 of the TA
• An Ontario interactive digital media tax credit under section 93 of the TA
• A Qualifying digital game corporation’s tax credit under section 93.1 of the TA
• A Specialized digital game corporation’s tax credit under section 93.2 of the TA
• An Ontario sound recording tax credit under section 94 of the TA
• An Ontario book publishing tax credit under section 95 of the TA
• An Ontario innovation tax credit under section 96 of the TA
• An Ontario business‑research institute tax credit under section 97 of the TA
• A Regional opportunities investment tax credit under section 97.1 of the TA
• An Ontario made manufacturing investment tax credit under section 97.2 of the TA
• For corporations, a Canadian film or video production tax credit under section 125.4 of the Income Tax Act (Canada)
• For corporations, a film or video production services tax credit under section 125.5 of the Income Tax Act (Canada)
• An investment tax credit under section 127 of the Income Tax Act (Canada)

A repayment of government assistance received for a work placement will also qualify as an eligible expenditure for the credit, but only to the extent that the government assistance affected a claim in a previous taxation year.

How do eligible educational institutions participate in this tax credit program?

The eligible educational institution will be responsible for certifying the work placement. The institution must certify that the student is enrolled in a qualifying co‑operative education program, that the employer has provided a work placement to the student, that the work performed with the employer is compatible with the objectives of that program and that the student has completed an employment period that meets the duration requirements (listed above).

Certification of the work placement can take the form of a declaration in a letter of certification, such as: “The [name of educational institution] certifies that the work placement completed by [student name] with [employer name and address] from [insert dates of placement] is a qualifying co‑op work placement under the [name/discipline of qualifying co-operative education program] for purposes of the Ontario co‑operative education tax credit.”

The letter of certification must include:

• the name of the student
• the name of the employer
• the name of the educational institution
• the term of the work placement
• the name/discipline of the qualifying co-operative education program
• the signature of an appropriate faculty member, such as the Director of Co-operative Education

Ontario businesses that hire students enrolled in a post-secondary co-operative education program are eligible for the tax credit.

Calculating the tax credit

An eligible employer can claim a credit for each qualifying work placement ending in the taxation year.

The tax credit rate is:

• 30% for employers with total payroll in the previous taxation year of $400,000 or less,
• 25% for employers with total payroll in the previous taxation year of $600,000 or more, and
• A rate between 30% and 25% (calculated by a formula) for employers with total payroll in the previous taxation year between $400,000 and $600,000.

The table below shows how to calculate the credit depending on the total payroll of the eligible employer in the previous taxation year.

Student employed for more than four months

Most work placements are for a minimum employment period of 10 weeks up to a maximum of four months. However, some educational programs (for example, qualifying internships) require employment periods that exceed four months. If this occurs, any additional consecutive four‑month period for that student will be considered a separate work placement.

If the additional period is less than four consecutive months but is more than 10 consecutive weeks, that period will still be considered a separate work placement.

However, if the additional period is less than 10 consecutive weeks, then it will be considered part of the work placement for the last completed four‑month period.

For example, assume one student works 11 months and another student works nine months. The first student has three qualifying co‑op work placements - two of four months each and one of three months. The second student will have two qualifying co-op work placements - one of four months and one of five months.

Claiming the tax credit

The credit is available to businesses for the taxation year in which the work placement ends.

The credit will reduce tax payable for that year and any excess will be refunded.

The full amount of the credit is taxable and must be reported as income in the tax year in which the credit is received.

Corporations claim the credit on Schedule 550 and file it with their T2 Corporation Income Tax Return.

Employers operating unincorporated businesses claim the credit on Form ON479, Ontario Credits, included in their Personal Income Tax Return.

Members of partnerships (other than limited partners) claim their share of the credit on their own corporate or personal tax returns, as applicable.

Supporting documents

Save a copy of the letter of certification you receive from the student’s university or college. 
The letter of certification needs to include:

• the name of the student
• the name of the employer
• the name of the educational institution
• the term of the work placement
• the name/discipline of the qualifying co-operative education program
• the signature of an appropriate faculty member, such as the Director of Co-operative Education

To help reduce compliance costs, the document could be the contract or memorandum of agreement between the employer and the institution. 

You do not need to submit the letter of certification with your tax return. But you will need to keep it for at least 7 years, should you be asked to provide documentation to support your tax credit claim.

If you are unable to provide supporting documentation when requested, your claim may be rejected.

Changing a tax credit claim

Employers may claim a previous year's credit or change the amount previously claimed by requesting an amendment to the relevant tax return.

• Incorporated businesses must send the tax return amendment request to the tax centre that serves the corporation. The request must include the name of the corporation, the corporation’s Business Number, the tax year that the amendment relates to, and any additional details. Relevant supporting information, such as revised financial statements and schedules, must also be attached.
• A Canadian‑controlled private corporation must make its request within three years of the initial assessment.
• Other corporations must make their request within four years of the initial assessment.
• Operators of unincorporated businesses requesting an amendment to a previous tax year should follow the instructions provided on the federal Income Tax and Benefit package or call the nearest Canada Revenue Agency office for assistance.

Contact the Canada Revenue Agency

The Canada Revenue Agency (CRA) administers the Co-operative Education Tax Credit on behalf of Ontario through the federal income tax system.

If you have questions about the credit, please contact the CRA at:

• 1‑800‑959‑5525 (English)
• 1‑800‑959‑7775 (French)
• 1‑800‑665‑0354 for teletypewriter (TTY)

You can also learn more about the credit by visiting the CRA website.