31 January 2013 External T.I. 2012-0466421E5 - Workforce Adjustment Education Allowance Received

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.

Principal Issues: Whether an education allowance is taxable under 6(1)(a) and included in the employment income of a laid-off employee who received the allowance under the work force adjustment provisions of a collective bargaining agreement.

Position: Likely yes.

Reasons: The education/training of an employee in the event of termination is generally undertaken primarily for the benefit of the employee.

XXXXXXXXXX
2012-046642
Kathryn McCarthy

January 31, 2013

Dear XXXXXXXXXX:

Re: Education Allowance Received Under a Work Force Adjustment Provision

We are writing in response to your e-mail of October 28, 2012, concerning the taxation of an education allowance received under the work force adjustment provisions of your collective bargaining agreement.

You described how you will delay your departure from your employer and go on leave without pay for a maximum of two years while studying at an educational institution. Your employer will provide you with an amount of up to $10,000 for the reimbursement of both the tuition and the cost of related textbooks and mandatory equipment. The amount is provided to assist an employee to find new employment. At the end of the two years, unless you have found other employment, you will be laid off in accordance with the Public Service Employment Act.

You enquired whether the education allowance is a taxable employment benefit which must be included in your employment income under paragraph 6(1)(a) of the Income Tax Act ("Act").

Our Comments

Section 6 of the Act provides for the inclusion in an employee's income of most employment related benefits other than those specifically excluded. The determination of whether a particular benefit provided to an employee (or former employee) is considered a taxable benefit under the Act is a question of fact which can only be determined after all the facts related to a particular case have been reviewed.

For employer-paid educational costs (as discussed in paragraph 18 of Interpretation Bulletin IT-470R, Employees' Fringe Benefits), when training is taken primarily for the benefit of the employer, there is no taxable benefit for the employee whether or not this training leads to a degree, diploma or certificate. For example, a course which is taken for the maintenance or upgrading of employer-related skills, when it is reasonable to assume that the employee will resume employment for a reasonable period of time after completion, will generally be considered to primarily benefit the employer and therefore, the value of the course is not a taxable benefit. However, a taxable benefit arises when the course is considered to be primarily for the benefit of the employee. For example, an employer-paid course for personal interest or technical skills that is not related to the employer's business is considered to primarily benefit the employee.

The determination of who is the primary beneficiary of particular training is made on a case by case basis. However in our view, the benefit from the education allowance given to you by your employer is likely taxable under paragraph 6(1)(a) of the Act because the education/training of an employee in the event of termination is generally undertaken primarily for the benefit of the employee. The education allowance received would be included in your employment income in the year it is received.

We trust our comments will be of assistance to you.

Yours truly,

Nerill Thomas-Wilkinson, CPA, CA
Manager
for Director
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch