16 January 2002 External T.I. 2001-0110155 - REIMBURSEMENT OF TUITION FEES

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues:

Whether the CCRA's position on the application of 6(1)(a) of the Act with respect to employer-paid education costs, outlined in Income Tax Technical News No.13 would apply where an employee receives an amount from the employer to reimburse education costs incurred prior to commencing employment.

Position:

No

Reasons:

The employee was not in the employ of the company prior to incurring the education costs. Moreover, the facts of this case indicate that subsection 6(3) of the Act may apply to deem the amount to be remuneration under section 5.

XXXXXXXXXX 	2001-011015
		Randy Hewlett, B.Comm.
January 16, 2002

Dear XXXXXXXXXX:

Re: Interpretation Request: Reimbursement of Tuition Fees

We are writing in response to your letter dated November 9, 2001, wherein you requested our opinion on the above-noted matter in a specific situation.

In your letter, you describe a situation in which an individual employee will be reimbursed by the current employer, a Canadian subsidiary of a United States (US) multinational consulting company, for tuition costs incurred to earn a business degree from a university in the US. Prior to commencing employment with the Canadian subsidiary and earning the degree, the individual worked in the US as a management consultant for approximately two years with the US parent company. The individual decided to leave the US parent company to obtain the degree.

The US parent company wanted the individual to return as an employee in the US, and therefore offered to reimburse the employee for tuition costs if the employee agreed to resume the former employment. The reimbursement would only be made following the resumption of full-time employment within a reasonable period following graduation. The individual employee would be obligated to pay back a prorated share of the tuition, with interest, in the event the employee left the company within the first 48 months of employment. The employee accepted the offer. However, the company "transferred [the] employment contract, including the reimbursement offer," to the Canadian subsidiary which carries on the same consulting business as the US parent.

The individual is a US citizen and has moved to Canada to commence employment with the Canadian subsidiary. Since the individual will be a Canadian resident for income tax purposes, you inquire whether the reimbursement of tuition fees by the Canadian subsidiary will be a taxable benefit under paragraph 6(1)(a) of the Income Tax Act (the Act) in view of the Canada Customs and Revenue Agency's (CCRA) position on employer-paid education costs contained in Income Tax Technical News No. 13.

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R4, Advance Income Tax Rulings, dated January 29, 2001. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments.

As noted in your letter, the CCRA's position on employer-paid educational costs, as it pertains to employment benefits taxable under paragraph 6(1)(a) of the Act, is contained in Income Tax Technical News No. 13. In general terms, when the training is taken primarily for the benefit of the employer there is no taxable benefit, whether or not the training leads to a degree, diploma or certificate. A taxable benefit arises when the training is primarily for the benefit of the employee. The Income Tax Technical News article contains specific guidelines with respect to three categories of training, and whether the employer or the employee would be the primary beneficiary of such education.

In our view, where an individual commences new employment and is reimbursed for education costs incurred prior to commencing that employment, any reimbursement of such education costs by the new employer would not come within the purview of the CCRA's position on employer-paid education costs outlined in Income Tax Technical News No. 13. In this regard, we feel that such courses would not have been taken for the "maintenance or upgrading of employer-related skills"- an essential requirement to determine that the employer is the primary beneficiary of the education.

In addition to the foregoing, where an individual terminates employment to pursue an education, and later recommences employment with the same employer on condition that the education costs be reimbursed, or obtains employment with a new employer under the same condition, it is our view that the payment would be taxable pursuant to subsection 6(3) of the Act. By virtue of paragraph 6(3)(c) of the Act, an amount received by an individual is deemed to be remuneration for the purposes of section 5, where the amount is received in satisfaction of an agreement made prior to, during or after a period of employment, and it is reasonable to regard the amount as being received as consideration for accepting the employment.

We trust our comments will be of assistance to you.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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