October 2017

5.3: Earnings Exemptions

Legislative Authority

Section 7(3) of the Act.
Sections 14(1), 48 and 49 of Regulation 134/98

Audit Requirements

Documentation is on file to support all reported and verified income and expenses.

Application of Policy

Earnings exemptions encourage participants to work or participate in paid training programs by allowing them, their spouses and dependent adults, to earn income while they are receiving financial assistance.

Subject to certain conditions, the first $200 in net earnings that each adult member of the benefit unit earns from employment, operating a business, or from a training program, is exempt as income when determining eligibility and budgetary requirements. If a member’s earnings are in excess of $200, then an additional 50% partial exemption is applied to their reduced earnings amount.

The earnings exemptions apply to each adult member of the benefit unit with earnings, unless they are otherwise fully exempted.

Earnings exemptions cannot be applied on income declared when determining initial eligibility for financial assistance at the time of application or during the first three months of receipt of financial assistance. The earnings exemptions can only be applied after three continuous months of being in receipt of Ontario Works or ODSP financial assistance.

For re-applicants who exited Ontario Works (or ODSP) with income from employment, a business, or from a training program, the earnings exemptions can be applied immediately, if the reapplication is made within six months of exiting assistance. This grace period can be applied each time a person exits and then re-applies for financial assistance.

  • The earnings exemptions do not apply to dependent adults whose net monthly income is greater than the maximum amount of assistance for a single person. In these situations, the dependent adult is removed from the benefit unit for that month.

Note: The earnings of, or amounts paid under a training program to, all members of the benefit under the age of 18 are fully exempt income and therefore not subject to the three month waiting period.

Earnings of Secondary Students Over the Age of 18

  • Earnings of, and amounts paid under a training program to, members of a benefit unit over the age of 18 attending secondary school full-time are exempt as income and therefore not subject to the three month waiting period. This includes earnings and training amounts paid during periods of school-mandated breaks (i.e., summer, holidays, etc.) as long as the student intends to return to school following the break.
  • This exemption applies until the program is complete or the person withdraws from full-time attendance in the program.

For the purposes of this exemption:

  • Full-time attendance means the student must be participating in a program that will result in the completion of a secondary school diploma a minimum of:
  • 17.5 hours per week of in-class instruction; and/or
  • 3 credits per semester or 6 credits per year.
  • A program of study for the completion of a secondary school diploma may be offered in-classroom, online, through home instruction, dual credit, co-operative education, and/or independent learning courses taken through a regular day school, adult program, continuing education program and/or summer school.
  • Clients must inform their caseworker that they are attending secondary school on a full-time basis or if their attendance status changes (i.e. withdrawal) during their study term.

Verification

Clients should be informed that their attendance will be verified at least once during their term of study. Delivery agents may choose to verify attendance more frequently.

Where the client has successfully completed their course(s), full-time attendance is implied and verification of academic completion of the course is sufficient. Clients may provide a report card and/or letter from the school or course instructor to verify successful completion.

Where a client has not successfully completed their course(s) (i.e., did not pass), verification of full-time attendance or program participation is required. The attendance record may be found on the report card. Attendance may also be verified in a letter from the school or course instructor.

If the client demonstrates intent to successfully complete the course of study (e.g. regular attendance and/or completion of course work) but fails to meet the academic requirements (i.e. does not pass the course), the client should be considered to be in full-time attendance.

In cases where it can be verified that the client did not successfully fulfill the academic requirements of a course (i.e., did not pass the course) and did not demonstrate intent to successfully complete the course of study, the client should not be considered to have been in full-time attendance for the relevant period and an overpayment should be applied  (see Directive 9.3: Recovery of Overpayments, for more information).

Where it can be verified that the failure to attend or complete coursework was caused by reasonable extenuating circumstances beyond the client’s control (e.g. illness), the client should be considered to be in full-time attendance.

Withdrawal/Change in Attendance Status

Clients are required to inform their caseworker that they have formally withdrawn from their course or their attendance status no longer meets the minimum requirements for full-time status above. An overpayment will be applied for the period of time between when the client formally ceased attending on a full-time basis and the end of the study term.

Earnings of Post-Secondary Students

Earnings of, and amounts paid under a training program to, persons in full-time attendance in an approved program of post-secondary study are exempt as income. This includes earnings and training amounts paid in the pre-study period (i.e., the 16 weeks immediately preceding the start of full-time attendance).

For the purposes of this exemption:

  • Full-time attendance means the student is enrolled in at least 60% of a full course load as defined by the post-secondary institution; and
  • Approved programs of post-secondary study include:
  • A program that is approved for the purpose of federal or provincial student loans (e.g., an Ontario student loan under the Ontario Student Assistance Program (OSAP)): or
  • A program that prepares the student to practice a regulated profession. These programs may be bridge training programs for foreign-trained professionals (e.g., nurses, engineers) and may not be eligible for student loans. However, they must take place at an approved post-secondary institution (i.e., college, university or private career college).

Note: Regulated professions are those identified in Schedule 1 of the Fair Access to Regulated Professions Act, 2006, or Schedule 1 of the Regulated Health Professions Act, 1991, which are available on e-laws. A list of approved post-secondary institutions is available on the OSAP website at https://osap.gov.on.ca/

Like the $200 flat rate and 50% partial exemption, the earnings exemption for post-secondary students is not effective until three months of continuous income assistance has been paid to the benefit unit. For re-applicants who exited Ontario Works (or ODSP) with earnings, or exited to employment, the earnings exemption can be applied immediately if the reapplication is made within six months of exiting assistance.

Note: Single applicants or participants in full-time attendance at a certified post-secondary educational institution remain ineligible for Ontario Works assistance. However, single Ontario Works recipients who enroll in, but are not yet attending a post-secondary institution, may be eligible for the earnings exemption during the 16 weeks pre-study period, if all other Ontario Works requirements are met. Once attendance begins at a certified post-secondary education institution, single recipients would no longer be eligible for Ontario Works assistance.

Components of Earnings Exemptions

Gross Earnings

Gross earnings are monthly earned income from full-time or part-time wages, salaries, casual earnings, business income, and/or training income, before mandatory payroll deductions and/or business-related expenses are deducted (as applicable).

Mandatory Payroll Deductions

Mandatory payroll deductions are those amounts that are deducted (by law and by terms of employment) from an employee’s wages. For the purposes of determining ongoing eligibility for financial assistance where the earnings exemptions apply, mandatory payroll deductions include only the following:

  • income tax deductions;
  • Canada Pension Plan (CPP) contributions;
  • Employment Insurance (EI) premiums;
  • union dues; and
  • mandatory pension plan contributions.

The amount of income tax deductions, CPP contributions and EI contributions are calculated based on the reported monthly gross earnings and the Canada Revenue Agency (CRA) Personal Tax Credit (TC) claim code. The CRA TD1 form is a job aid used to determine the TC claim code and the accurate amount of taxes to be deducted from gross earnings.

If it is determined that an “over-contribution” has been made to any deductions (e.g., income tax or voluntary pension contributions), the amounts of the excess deductions should not be deducted as part of mandatory payroll deductions.

Business Expenses

If an individual has income from an interest in, or the operation of a business, they may deduct approved business expenses from that income to calculate net earnings from the business.

(see Directive 5.11 Farm Income, Directive 5.12 Private Child Care Income, and Directive 5.13: Self-Employment Income, for more information).

Net Earnings

Net earnings are the balance of gross earnings minus allowable mandatory payroll deductions.

Where the individual has income from a business, net earnings are gross earnings less business-related expenses.

Earnings Exemption Amount

The earnings exemption amount is the first $200 that is earned from employment, a business or a training program by each adult member of the benefit unit per month, plus an additional 50% partial exemption on earnings that are over $200.

Child Care Deduction

The child care deduction is the sum of eligible monthly child care expenses incurred by participants that enable them to participate in employment or training programs. Participants do not need to be in receipt of assistance for three continuous months in order to qualify for child care deductions (see Directive 5.4: Child Care Deductions for more information).

Total Allowable Earnings Deduction

The total allowable earnings deduction is the sum of the earnings exemptions amounts and any applicable child care deductions.

Chargeable Earnings Amount

The chargeable earnings amount is the balance of net earnings minus the total allowable earnings deduction.

Application of Earnings Exemptions

Participants who have met the three month qualifying period, or re-applicants who qualify for the grace period, are eligible to have the $200 flat rate and 50% earnings exemption applied to their net earnings when determining their chargeable earnings amount. The earnings exemptions apply to full-time and part-time monthly earnings from employment, a business, and amounts paid under a training program.

The chargeable earnings amount is used to determine the amount of financial assistance that a benefit unit may be eligible for.

Payments from EI should be treated as income. However, if these payments are clearly designated as a "training allowance" (e.g., income supports offered through the Ontario Skills Development Benefit Program) and specifically received to participate in a training program, then the earnings exemptions may be applied.

It is the responsibility of the participant to declare all earnings or training wages in the month received and to submit the required documentation to verify gross and net earnings amounts. In cases where only a portion of the participant’s income has been declared, an overpayment calculation should be based on the total gross and net earnings amounts (see Directive 9.3: Recovery of Overpayments for more information).

Calculating Earnings Exemptions

The earnings exemption calculation is as follows:

Step 1:
Determine the participant’s net earnings.

Step 2:

Apply the $200 flat rate earnings exemption and the 50% partial exemption, as applicable, to the participant’s net earnings (Note: this amount cannot be less than $0).

Step 3:

Add any child care deductions to the total earnings exemption amount to arrive at the total allowable deductions.

Step 4:

Subtract the total allowable deductions from the net earnings to arrive at the chargeable earnings amount (Note: this amount cannot be less than $0).

Step 5:

Subtract the chargeable earnings amount from the budgetary requirements to determine the amount of financial assistance.

Step 6:

Assess, verify and document any other income exemptions.

Example

Mary is a single parent with a six-year-old child. She has monthly budgetary requirements of $986 and has been on Ontario Works for six months. Her gross monthly income from employment is $1,275, less $125 in payroll deductions. Mary’s childcare costs are $600 per month.

Step 1: Mary’s caseworker determines her net earnings by subtracting mandatory payroll deductions from her gross employment income.

Gross earnings: $1,275.00
Less mandatory payroll deductions: -$125.00
Net earnings: $1,150.00

Step 2: Mary’s caseworker applies the $200 flat rate exemption and subtracts it from her net earnings:

Net earnings: $1,150
Less flat rate exemption: -$200
  $950

After the $200 flat rate is subtracted, Mary has $950 in potentially chargeable employment income so her caseworker then multiplies $950 X 50% to calculate the portion of her exemption attributable to the 50% partial earnings exemption:

Total earnings exemption: $200 + $475 = $675

Step 3: Mary’s caseworker adds her child care deduction of $600 for informal child care costs to her earnings exemption amount to arrive at the total allowable deduction amount.

Total earnings exemption: $675.00
Child care deduction: +$600.00
Total allowable deductions: $1,275.00

Step 4: Mary’s caseworker subtracts her total allowable earnings deductions from her net employment income to arrive at her deductible earnings.

Net employment income: $1,150.00
Less total allowable deductions: $1,275.00
Deductible earnings (cannot be less than $0): $0

Step 5: Mary’s caseworker subtracts her deductible earnings from her Ontario Works budgetary requirements to find out how much income assistance she will receive.

Budgetary requirements: $986.00
Less deductible earnings: -$0.00
Ontario Works payment $986.00