27 November 2000 External T.I. 2000-0033265 - TUITION-EMPLOYEE BENEFIT&HOME OFFICE

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. Deductibility of home offices by an employee working at a client's location and also working at home?

2. Are paid tuition fees a taxable benefit to the employee who resigns shortly after completion of his course ?

Position:

1. No, majority of his time is spend at the client's location

2. Question of fact but since employee took the courses which took nearly 2 years to complete, and appears to have maintained his daily employment schedule, it is likely not a taxable benefit.

Reasons:

1. 8(13)(i) requires that the employee principally performs the duties of office or employment at the office in the home

2. Employer not likely to reimburse employee for courses if he is aware that the employee is leaving and also the assumption that employee will resume employment is made at the time of reimbursement.

XXXXXXXXXX 2000 - 003326
C. Tremblay
Attention : XXXXXXXXXX

November 27, 2000

Dear XXXXXXXXXX,

This is in reply to your letter dated June 20, 2000, wherein you requested our opinion concerning two situations. We apologise for the delay in responding.

In the first situation you ask whether an employee of XXXXXXXXXX can deduct office in the home expenses. The employee in question will be working at a client's location based on a service agreement between XXXXXXXXXX and the client. The client provides office space while he is at their location. No office space is provided by XXXXXXXXXX and the employee will need to work at home to complete his reports and various other related jobs not accomplished at the customer site. However, he will spend the majority of his time at the client's location.

In the second situation, you ask whether another employee of XXXXXXXXXX has received a taxable benefit based on the following facts. He has been employed since

XXXXXXXXXX and has been receiving reimbursements for his MBA tuition fees since that time. He was employed as a sales manager, negotiating contracts and interacting with clients while taking the courses. The employee completed his MBA at the end of XXXXXXXXXX and handed his resignation in 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 (copy attached). 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 Canada Customs and Revenue Agency (the "CCRA").

In your first situation, subsection 8(13) of the Income Tax Act (the "Act") prohibits a deduction for amounts in respect of a work space in the home unless the individual either principally performs the duties of the office or employment in that work space, or the work space is "used exclusively... for the purpose of earning income from the office or employment and used on a regular and continuous basis for meeting customers or other persons in the ordinary course of performing the duties...". The term "principally", for the purposes of the Act, is taken to mean in excess of fifty percent. Whether either one of these conditions is met by any particular employee involves a factual determination. In our view, an employee who spends the majority of his time at a client's location would not satisfy the first condition. Further, an employee who does not use the work space on a regular and continuous basis for meeting customers or other persons in the ordinary course of performing the duties of the office or employment would not meet the second condition.

In your second situation, we refer you to the guidelines found in Income Tax Technical News No. 13, dated May 7, 1998 (copy enclosed), to assist you in determining whether employer-paid educational costs are to be considered a taxable benefit. Generally, 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 completing the courses, will generally be considered to primarily benefit the employer. The assumption that the employee will resume his employment is generally made at the time the employee is reimbursed for his educational costs. It is the employer's responsibility to determine whether on a case by case basis the reimbursed educational costs is for the primary benefit of the employer and thus treated as non-taxable, or simply personal interest training and thus taxable (see enclosure).

We trust our comments will be of assistance.

Yours truly,

Jim Wilson
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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