Educational Technology Tax Incentive

Corporate and Commodity Tax Branch
Tax Legislation Bulletin Number 01-07, June 2001

Introduction

In the 2000 Budget, Ontario announced the Educational Technology Tax Incentive (ETTI). This incentive is designed to encourage Ontario businesses to support Ontario's community colleges and Ontario's universities in acquiring new teaching equipment and learning technologies.

The rules discussed in this bulletin are contained in section 13.5 of the Corporations Tax Act and subsection 8(15.4) and section 8.4.1 of the Ontario Income Tax Act. This bulletin is provided as a guide for taxpayers and it is not intended as a substitute for the legislation. For precise details, the reader should consult the appropriate statutes.

Table of Contents

• General
• Tax Incentive
  • Corporations
  • Unincorporated businesses
  • Notional price
  • Partnerships
• Reduction of non-capital loss
• Eligible equipment
• Eligible learning technologies
• Excluded equipment or tools
• Eligible course
• Eligible educational institutions
• Documentation
• Further information
• Appendix one : Ontario educational technology tax incentive certificate
• Appendix two: Educational technology tax incentive : examples of eligible equipment and learning technologies (including those for students with learning and other disabilities)

1. General

The ETTI is available to businesses that donate or give special price discounts on new eligible equipment or eligible learning technologies to an eligible educational institution after May 2, 2000. Special discounts given on the licensing of eligible learning technology also qualify for this incentive, but do not include special discounts given for the leasing of eligible equipment.

To qualify for this tax incentive, a business must operate out of a permanent establishment in Ontario and must be subject to Ontario tax on its income. Not-for-profit and other tax-exempt businesses are not eligible for the ETTI.

2. Tax Incentive

For corporations, the incentive is a 15 per cent tax deduction in computing income. For unincorporated businesses, it is a 5 per cent refundable tax credit. The incentive is in addition to any existing tax deduction or tax credit for donations or promotional expenses or for price discounts given.

2.1 Corporations

The amount of the corporate tax deduction is based on the following formula:

[ (A - B) ÷ C ] × 15%

"A" is the corporation's notional price (see section 2.3) for the eligible equipment or the eligible learning technology,

"B" is the fair market value of the consideration paid or payable by the eligible educational institution, and

"C" is the corporation's Ontario allocation factor for the taxation year (i.e., the percentage of the corporation's total taxable income that would be allocated to Ontario).

When a corporation allocates part of its taxable income to another jurisdiction, "C" in the above calculation grosses-up the deduction by the Ontario allocation factor to ensure that the ETTI is fully deducted against Ontario source income.

For example, assume a corporation donates $1,000 of eligible equipment to a university and allocates 50 per cent of its taxable income to Ontario. The ETTI deduction would equal $300 (i.e., ($1,000/.5) x 0.15). After applying the corporation's Ontario allocation factor of 50 per cent to its taxable income, the actual deduction is $150, which is equal to the amount that would be deductible if the corporation allocated 100 per cent of its taxable income to Ontario.

2.2 Unincorporated Businesses

For unincorporated businesses, the 5 per cent refundable tax credit is calculated based on the following formula:

(A - B) X 5%

"A" is the individual's notional price (see section 2.3) for the eligible equipment or the eligible learning technology, and

"B" is the fair market value of the consideration paid or payable by the eligible educational institution.

2.3 Notional Price

A taxpayer's or partnership's notional price for eligible equipment or eligible learning technologies is:

1. If the taxpayer or partnership carries on a business of selling eligible equipment or selling or licensing eligible learning technologies, the lowest amount the taxpayer or partnership would normally have charged in the year to an arm's length person for the equipment or technology, or

2. In all other cases, the cost of the equipment or technology to the taxpayer or partnership.

For the purpose of paragraph 1 above, the lowest amount normally charged to an arm's length person is the licence fee or selling price charged to arm's length customers less any price discount that may normally be offered to customers. The discount eligible for the ETTI is the amount in excess of the normal discount.

Example

Assumptions

A corporate taxpayer normally sells eligible electronic equipment to large institutions for $1,500, less a 20 per cent discount. To help support a particular course offered at a university, the taxpayer sells the eligible electronic equipment to that university for $1,500, less a 25 per cent discount. Subsequently, the taxpayer decides to support a similar course at a community college and sells the eligible electronic equipment to that college for $1,500, less a 30 per cent discount. The taxpayer allocates 100 per cent of its taxable income to Ontario.

Calculation of ETTI

	University	College
Selling price	$1,500	$1,500
Less usual price discount given @ 20%	(300)	(300)
Notional price (lowest amount charged to arm's length person)	$1,200	$1,200
Amount paid by educational institution
[university (75% of $1,500), college (70% of $1,500)]	$1,125	$1,050
Notional price less amount paid by educational institution (A)	$75	$150
ETTI deduction = 15% of (A)	$11.25	$22.50
Total ETTI deduction = $11.25 plus $22.50 = $33.75

2.4. Partnerships

Corporate Partners

When a corporation is a member of a partnership (other than a limited partnership) and the partnership qualifies for the ETTI tax deduction, the corporation may claim its share of the partnership's ETTI deduction in computing its income based on its percentage of the income entitlement in the partnership. If the partner operates inside and outside Ontario, the gross-up of the incentive is applied at the level of the partner using the partner's Ontario allocation.

Individual Partners

When an unincorporated business is a member of a partnership, each member of the partnership may claim a tax credit equal to the member's reasonable share of the partnership's tax credit.

Limited Partners

Limited partners are not eligible for the tax credit or the tax deduction.

3. Reduction of Non-Capital Loss

When a corporation's ETTI creates or increases a non-capital loss which is then applied to reduce the income of other taxation years, the amount of the non-capital loss may be subject to a reduction. The Ministry may apply the reduction where the Ontario allocation factor for the taxation year to which the loss is being applied exceeds 120 per cent of the Ontario allocation factor for the taxation year in which the loss was incurred. This reduction prevents a corporation from applying grossed-up losses in a low allocation year to unduly reduce income in a high allocation year.

4. Eligible Equipment

"Eligible equipment" is equipment that has never been used before, and is

1. a computer, electronic or telecommunications equipment used primarily to enhance and expand delivery of an eligible course by enabling better communication between instructors and students or between students, either inside or outside the classroom, or

2. instructional equipment or tools used primarily to deliver an eligible course, including specialized supplies essential to the operation of the equipment or tools.

Systems software essential to the operation of the equipment or tools is also included, as it is considered an integral part of the equipment. Ordinary office stationery and supplies are not considered specialized supplies. Examples of specialized supplies for a photography or motion picture education program for instance, would include still and motion picture film, videotape, photographic paper and chemicals.

Appendix 2 provides examples of equipment and tools that qualify for the ETTI.

5. Eligible Learning Technologies

"Eligible learning technologies" are:

1. custom or pre-packaged computer programs used primarily to deliver an eligible course to students or instructors,

2. custom computer programs used primarily to provide digital library services to students or instructors, or

3. instructional aids consisting of collections of images, sounds or animated pictures that are archived and shared through the Internet and can be accessed and used in an eligible course.

Appendix 2 provides examples of learning technologies that qualify for the ETTI.

6. Excluded Equipment or Tools

The following equipment or tools do not qualify for this incentive:

1. office or classroom furniture (e.g., desks, chairs, blackboards, flip charts etc.),

2. fixtures, wiring or components that are a part of a building or structure,

3. fibre optic cable,

4. a personal or laptop computer, if the student owns it after completing the eligible course,

5. maintenance equipment, and

6. books.

7. Eligible Course

An "eligible course" is a course of study offered by an eligible educational institution that provides credit towards a post-secondary degree, diploma or certificate or towards an apprentice training program approved by the Director of Apprenticeships under the Apprenticeship and Certification Act, 1998 or the Trades Qualifications and Apprenticeship Act.

8. Eligible educational institutions

The following institutions are eligible education institutions:

1. A university or college of applied arts and technology in Ontario whose enrolment is counted for the purposes of calculating its entitlement to annual operating grants entitlements from the Government of Ontario.

2. The Michener Institute of Applied Health Sciences.

3. The Ontario College of Art and Design.

9. Documentation

The eligible educational institution will be responsible for certifying that the equipment donated or sold or the technology donated, sold or licensed to the institution is eligible equipment or an eligible learning technology. The educational institution will certify the eligibility of the equipment or technology by issuing a certificate to the business. The institution has the choice of using the sample certificate attached to this bulletin (see Appendix 1) or of designing its own certificate as long as it contains the same information. In order to claim this incentive, the taxpayer must obtain and retain the certificate.

10. For further information:

For enquiries concerning eligible equipment or learning technologies, contact:

The Ministry of Training, Colleges and Universities

Universities Branch
7th Floor Mowat Block
900 Bay Street
Toronto, Ontario  M7A 1L2
Telephone 416 325-1953
Facsimile 416 325-1959

Colleges Branch
10th Floor Mowat Block
900 Bay Street
Toronto, Ontario  M7A 1L2
Telephone 416 325-1816
Facsimile 416 325-2225

For all other enquiries contact the Ministry of Revenue:

• English 1 800 263-7965
• French 1 800 668-5821
• Teletypewriter (TTY) 1 800 263-7776

Appendix one : Ontario educational technology tax incentive certificate

Appendix two: Educational technology tax incentive
(including those for students with learning and other disabilities)

The following are examples of eligible equipment or learning technologies if these items meet the criteria in sections 4 or 5 of the bulletin.

ELIGIBLE EQUIPMENT
Computer, electronic and telecommunications equipment

1. Portable or personal computers, including computer monitors (see section 6 of the bulletin for exclusions).

2. Digital photo and video recorders.

3. High-speed modems.

4. Mobile satellite transmitters to provide access to global resources (e.g. GlobaLearn).

5. Virtual reality simulation technologies, including software (e.g. flight simulators, chemical lab experiments, medical applications).

6. Audiographics or electronic whiteboard (e.g. SMART boards).

7. Videoconferencing system equipment, including software (e.g, Picturetel, Intel, Polycom etc).

8. Audioconferencing system equipment, including software (e.g. Polycom).

9. CAD/CAM work stations with auto-CAD software.

10. Animation design work stations with specialized graphic software.

11. Geographic information systems equipment, including software.

12. CD-ROM burners and players for the creation of learning materials.

13. Personal Access Device (PAD).

14. Wall PADS (WADS).

15. Intuitive manipulation devices, such as data glove.

16. Microprocessors.

17. Printers.

Instructional equipment and tools

1. Manufacturing equipment, such as computerized measuring instrumentation, electrical machines and controls/relay logic, programmable logistical control equipment, computer numeric control lathes/mills, ram and turret milling machines, engine lathes, surface or cylindrical grinders, sink electrical discharge machine and a die spotting press.

2. Automotive service technician and truck and coach equipment, such as five gas analyzer and engine drive line interface equipment, hand-held scan tools, four wheel alignment equipment, hydraulic lifting equipment, diesel fuel-injection comparators, diesel engine dynamometers, diesel fuel-injection service tools, truck and coach hoist and smokemeters.

3. Dental chairs and X-ray units (for dental assisting programs).

4. Equipment for specialized work stations that are used for a particular application, such as interior design, animations or simulations.

5. Equipment for specialized laboratory stations, such as a language lab, early childhood education lab school, dental assisting practice lab, machine shop or chemistry lab.

6. Laboratory equipment, such as microscopes, balances, meters, detectors, vacuum equipment, spectroscopy equipment or equipment/materials testing equipment.

7. Specialized health and safety equipment, such as hazardous handling spill containment carts, gas detection systems or magnetic shielding systems.

8. Radio and TV broadcast equipment such as cameras, master controls, digital switcher and distribution systems, audio boards and lighting grids.

9. Equipment used in nursing programs such as medication carts, bed units, cardiac chairs, CPR crash carts and PCA pumps.

10. Imaging products, such as still or motion picture film and cameras, photographic paper, chemicals, processing equipment, video tape, digital cameras and computer media products.

ELIGIBLE LEARNING TECHNOLOGIES
Custom or pre-packaged computer programs

1. Development and delivery software (e.g., Web CT, Macromedia Director, Macromedia Author Ware, Asymmetrix Tool Book, Centrinity's First Class, IBM Lotus Notes, Web board, Virtual-U, Web Course in a Box, Norton Connect, Allaire Forum, Question Mark, Blackboard Course Info, Team Wave and Place Ware).

2. Electronic drawings systems.

3. Computer Based Training (CBT), Computer Assisted Learning (CAL) or Computer Based Instruction (CBI).

4. Corel Draw and Paint.

5. eCollege Campus Gateway.

6. Learning object repository management tool software.

7. Administrative systems software for registration, grades and record-keeping, assignment marking and information management.

8. Virtual library software.

Instructional aids

1. Collections of still images such as those posted in MERLOT.

2. Archived video and sounds such as those posted in MERLOT.

3. Diagrams put into electronic format.

ELIGIBLE EQUIPMENT AND LEARNING TECHNOLOGIES
(for students with learning and other disabilities)

1. AlphaSmart or Dreamwriter.

2. Blazie-Braille Lite, Braille 'n Speak or BrailleMate.

3. Calculator-Electro Concept Audio.

4. Laptops that are linkable (see section 6 of the bulletin for exclusions).

5. Echo Speech Processor.

6. Franklin Language Master.

7. FM system.

8. Sensor controlled devices such as HeadMouse, Kensington Orbit Trackball, Cirque Glidepoint Touchpad and Wacom Tablet & Stylus pointing devices.

9. Head-pointer.

10. IC Recorder.

11. Inspiration 6 Pro.

12. Keyboards such as BAT Personal, Bloorview mini, Comfort, Comfort System, EKEG Expanded (IBM), EKEG Expanded Numeric, EKEG Expanded (MAC/GS), Ergonomic, Keytronic Dvorak R/H and King Keyboard.

13. Mind Manager.

14. Scanners used with Kurzweil 1000, Kurzweil 3000 and Travelling Executive.

15. Software such as Aurora 3.1 for Windows, Co-Writer, Dragon Naturally Speaking/Dragon Dictate, JAWS for Windows, Kurzweil 1000, Kurzweil 3000, Mavis Beacon Teaches Typing, TextHelp, Voice Direct and Zoomtext.

16. Palm Pilot.

17. Printer-Braille Bookmaker.

18. Tape Recorders.

19. TTY machines.

20. VTEK-magnifying system.