If you employ an apprentice during the year, you should make sure that you claim the apprenticeship tax credits on your tax returns. This is an often overlooked tax credit available to employers.
As an employer, whether a sole-proprietor, partnership, or corporation, you may be able to claim the apprenticeship tax credits. There is both a federal and provincial credit and you must satisfy certain criteria.
Federal – Apprenticeship Job Creation Tax Credit (AJCTC)
The Apprenticeship Job Creation Tax Credit (AJCTC) is a non-refundable tax credit, equal to 10% of eligible salaries and wages payable to eligible apprentices. There is a maximum $2,000 credit that can be claimed per year for each eligible apprentice and it can only be claimed during the first two years of the apprenticeship contract. This means that there is a $4,000 maximum that can be claimed for an apprentice during the apprenticeship. These rules apply to apprentices employed after May 1, 2006.
Unused federal credits
The credit is non-refundable, meaning it can not reduce the amount of taxes owing to less than zero. It is possible that you may not need or are not allowed to claim all of the credit in the current year. In that situation, you are entitled to carry any unused credit back three years and forward 20 years.
Provincial – Apprenticeship Training Tax Credit (ATTC)
The Apprenticeship Training Tax Credit (ATTC) is a refundable tax credit, equal to 25% to 30% of the eligible expenditures paid. There is a maximum $5,000 credit that can be claimed per year for each apprentice and it can only be claimed during the first 36 months of the apprenticeship period. This means that there is a $15,000 maximum that can be claimed for an apprentice during the apprenticeship. These rules apply to apprenticeship programs that commenced after April 24, 2015. Different rules apply to programs that commenced prior to this date. For example, for programs that commenced prior to April 24, 2015, for eligible expenditures incurred after March 26, 2009, the first 48 months of the apprenticeship program qualify for purposes of the credit.
The federal and provincial rules differ for what qualifies as an eligible apprentice.
Under the federal rules, the contract must be registered with a federal, provincial, or territorial government under an apprenticeship program designed to certify or license individuals in the trade. Apprentices eligible for the tax credit generally include trades listed as Red Seal Trades.
Under the provincial rules, the employer and employee must be participating in an apprenticeship program in which the training agreement or contract of apprenticeship has been registered under the Ontario College of Trades and Apprenticeship Act, 2009, or a predecessor of that Act.
What to do if you did not claim the credit
Incorporated and unincorporated businesses may file adjustments to a tax return for a previous year, subject to certain limitations.
We have completed numerous adjustments to prior year tax returns for both incorporated and unincorporated businesses which have resulted in often tens of thousands of dollars being refunded to our clients. This is often a result of our discovery of a new client who had a previous accountant that did not know of or know to claim the apprentices or the apprenticeship tax credits.
Adjustment requests to prior year tax returns must be carefully calculated and in a timely manner to ensure you receive all entitled tax credits and do not miss out on any tax savings.