17 November 2000 Internal T.I. 2000-0043607 - EMPLOYER-PAID TUITION

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: Whether an executive MBA may be considered to be primarily for the employer's benefit and therefore non-taxable where it meets the guidelines for non-taxability except for the fact that the employee's salary is reduced by XXXXXXXXXX %.

Position: More facts required.

Reasons: If the XXXXXXXXXX % salary reduction is made to account for the employee's absence from the office while on training, it is likely that a reduction in the circumstances would not, in and of itself, cause the $XXXXXXXXXX  to be taxable.  On the other hand, if the employee continues to work full-time, and it is clear that he or she has given up salary in exchange for the reimbursement of training costs by the employer, the reimbursement of training costs would be regarded as ordinary remuneration as set out in ITTN No. 13.
		November 17, 2000

	Windsor Tax Services Office	HEADQUARTERS
	Business Window	J. Gibbons
	Client Services	(613) 957-2135

	Attention: Marge Durling
		2000-004360

Executive MBA - Whether a Taxable Benefit

We are replying to your email dated August 23, 2000, concerning an enquiry you received from the payroll department of an employer. The enquiry relates to the application of paragraph 6(1)(a) of the Income Tax Act (the "Act") to employer-paid training costs.

Facts

• The employer has an employee who is participating in an executive MBA program.
• The course upgrades employer-related skills.
• The employer has agreed to pay XXXXXXXXXX of the tuition fees, which amounts to approximately $XXXXXXXXXX.
• The employer and the employee have entered into an arrangement whereby the remuneration ordinarily paid to the employee is reduced in recognition of training costs incurred by the employer.
• The reduction in the employee's remuneration does not equal the amount of tuition paid by the employer, but rather is for a "nominal" amount of XXXXXXXXXX% of the employee's income.
• It is presumed that the employee is attending classes during normal work hours.
• The employee intends on returning to work with the employer when he completes the executive MBA program.

You feel that, because of the XXXXXXXXXX% reduction in the employee's pay, the employee's participation in the MBA Executive program may be considered to be primarily for the employee's benefit as contemplated in the third last paragraph of "Income Tax Technical News No. 13," ("ITTN No.13"). If that is the case, the entire $XXXXXXXXXX will be taxed as employment income.

Our views

Our position on employer-paid educational costs, as announced in ITTN No. 13, is that when 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. Whether or not training is primarily for the benefit of the employer is always a question of fact. However, when an employer bears some of an employee's training costs but, at the same time, reduces the employee's salary, there is a concern that the employee is giving up taxable employment income in exchange for the employer's financing of the employee's training.

Since you stated in your letter that the executive MBA Executive program upgrades employer-related skills and the employee intends to return to work with his present employer after completing the program, it would appear that the payment by the employer of a portion of the employee's tuition may be considered to be primarily for the employer's benefit and therefore non-taxable, other than for the fact that the employee's salary is also reduced. If the XXXXXXXXXX % salary reduction is made to account for the employee's absence from the office while on training, it is likely that a reduction in the circumstances would not, in and of itself, cause the $XXXXXXXXXX to be taxable. On the other hand, if the employee continues to work full-time, and it is clear that he or she has given up salary in exchange for the reimbursement of training costs by the employer, the reimbursement of training costs would be regarded as ordinary remuneration as set out in ITTN No. 13. If you have a more detailed fact situation, we would be pleased to consider it further.

If an employer determines that employer-paid training is non-taxable under the new guidelines, no reporting of these costs will be required. However, relevant documentation which has been used in making this determination should be kept.

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Agency's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version, or they may request a copy severed using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Jackie Page at 613 957-0682. The severed copy will then be sent to you for delivery to the client.

John Oulton
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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