29 July 1999 External T.I. 9907995 - EMPLOYER-PAID EDUCATION COSTS

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 Department.

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

Principal Issues:

1.Are education costs of employees non-taxable under the guidelines in Technical News number 15 when employees may be reimbursed for courses supporting the development of specialized skills and knowledge related to the insurance business.

2. Are employer-paid membership fees in professional associations taxable benefits.

Position:

1. Yes.

2. If the primary beneficiary is the employer, no benefit. If the primary beneficiary is the employee, there is a benefit.

Reasons:

1. The courses meet the conditions of specific employer related training per Technical News #13.

2. Per Technical News #15, it depends on whether the primary beneficiary is the employer or the employee.

XXXXXXXXXX 		5-990799
D. Shugar
Attention: XXXXXXXXXX 

July 29, 1999

Dear XXXXXXXXXX:

Re: Employer-Paid Educational Costs

We are writing in reply to your letter of March 24, 1999, requesting our opinion whether employer-paid course fees (as well as related text book, exam and membership fees) of employees of XXXXXXXXXX (the “Company”) are non-taxable, based on the guidelines on employer-paid educational costs. In your letter you listed seven educational programs available to your employees and provided documentation explaining each one, as well as your guidelines which state that “XXXXXXXXXX".

Our Comments

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request. The procedures for requesting an advance income tax ruling are outlined in Information Circular 70-6R3 dated December 30, 1996. Where the particular transactions are completed, the enquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments which are of a general nature and are not binding on the department.

Employer-Paid Education Costs

Tuition fees are addressed in paragraphs 18 and 19 of Interpretation Bulletin IT-470R, Employee’s Fringe Benefits, which discusses employment benefits under paragraph 6(1)(a) of the Income Tax Act (the “Act”). Paragraph 18 of IT-470R states that where an employer has paid tuition fees on behalf of an employee or has reimbursed an employee, in whole or in part, for tuition fees paid by the employee personally, the amount paid should be included in income for the year in which the payment was made. Paragraph 19 of IT-470R provides an exception when the course is taken primarily for the benefit of the employer.

Technical News #13, issued on May 7, 1998, announced new guidelines that assist in the determination of whether employer-paid educational costs are to be considered a taxable benefit. The first paragraph of Technical News #13 states that the Department has reviewed its guidelines on employer-paid educational costs in relation to employment benefits taxed under paragraph 6(1)(a) of the Act.

The new guidelines are effective as of May 7, 1998 and will apply to all future assessments and reassessments in an arm’s length employee-employer relationship. This means that these guidelines will generally apply to:

(i) all assessments and reassessments of the 1997 and subsequent taxation years, and

(ii) all future reassessments resulting from an objection or appeal, or from a waiver filed prior to May 7, 1998.

The new guidelines consider three broad categories of training. Only training and educational costs which fall within the third category will be considered of primary benefit to the employee and thus remain taxable. All other training which falls into the first or second category will generally be considered to primarily benefit the employer and, therefore, be non-taxable.

Category 1: Specific Employer-Related Training - Non-Taxable

Courses which are taken for maintenance or upgrading of employer-related skills, when it is reasonable to assume that the employee will resume his or her employment for a reasonable period of time after completion of the course. Whether or not the course leads to a degree, certificate or diploma, and when the course is taken will not affect the taxation of the training.

Category 2: General Employment-Related Training - Non-Taxable

Other business-related courses, although not directly related to the employer’s business. Examples of this category would include stress or time management, employment equity, first-aid and language skills.

Category 3: Personal Interest Training - Taxable

Employer-paid courses for personal interest or technical skills that are not related to the employer’s business; for example, fees paid for a self-interest carpentry course.

The newsletter states that “Courses which are taken for maintenance or upgrading of employer-related skills, when it is reasonable to assume that the employee will resume his or her employment for a reasonable period of time after completion of the courses, will generally be considered to primarily benefit the employer and therefore be non-taxable. For example, fees and other associated costs such as meals, travel and accommodation which are paid for courses leading to a degree, diploma or certificate in a field related to the employee’s current or potential future responsibilities in the employer’s business will not result in a taxable benefit.”

It is the employer’s responsibility to determine whether on a case by case basis the reimbursed educational costs should be treated as non-taxable. Once the employer determines that training is considered non-taxable under the new guidelines, no reporting of these costs will be required. Relevant documentation which has helped in the determination that the employer-paid training is non-taxable should be kept. The new guidelines do not necessarily apply in non-arm’s length relationships or in specific examples which evidence that the benefit was in fact primarily for the employee. This will be the case, for example, if the employee and the employer have entered into an agreement under which the remuneration ordinarily paid to the employee is reduced in recognition of training costs incurred by the employer.

In our view, based upon a review of the documentation included with your letter, and the Company’s guidelines, the seven education programs would fall in the category of ‘Specific Employer-Related Training’. Therefore, course fees, text books and exam fees paid by the employees and reimbursed by the Company will not result in a taxable benefit.

Membership Fees

The Department’s position on employer-paid membership fees is stated in Technical News #15, issued on December 18, 1998. The Department’s position is that the payment of professional membership fees by an employer on behalf of its employees is not a benefit if the employer is the primary beneficiary of the payment. Whether the employer is the primary beneficiary is a question of fact.

When the professional association is related to an employee’s duties, and membership is a requirement of employment, the Department will accept as fact that the employer is the primary beneficiary, and consequently, there is no taxable benefit resulting from the payment. However, when membership is not a condition of employment, the question of primary beneficiary must still be resolved. The employer will be responsible for making this determination; however, it must be able to justify its decision should the Department ask it to do so.

We trust our comments will be of assistance to you.

Yours truly,

Roberta Albert, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

- 4 -