2001 Ruling 2001-0068203 - TAXABLE BENEFITS

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 the reimbursement, by an employer, of education-related expenses incurred by an employee, gives rise to a taxable benefit to the employee.

Position: Question of Fact.

Reasons: The determination of whether the employee or the employer is the "primary beneficiary" of the education-related expenses will determine whether or not there is a taxable benefit.

XXXXXXXXXX 2001-006820

XXXXXXXXXX, 2001

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling
XXXXXXXXXX

XXXXXXXXXX .

This is in reply to your letter dated XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the above named taxpayers.

We understand that, to the best of your knowledge and that of the taxpayers involved, none of the issues involved in the ruling request:

(i) is in an earlier return of the taxpayer or a related person,

(ii) is being considered by a tax services office or taxation center in connection with a previously filed tax return of the taxpayer or a related person,

(iii) is under objection by the taxpayer or a related person,

(iv) is before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired, and

(v) is the subject of a ruling previously issued by the Directorate;

Unless otherwise stated, all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended, (the "Act") and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.

Our understanding of the facts, proposed transactions and the purpose of the proposed transactions is as follows:

Definitions

(a) The "Company" is XXXXXXXXXX;

(b) "Non-resident" has the meaning assigned by subsection 248(1) of the Act;

(c) "Services Company" is XXXXXXXXXX, an affiliate of the Company;

(d) "USCO" is XXXXXXXXXX;

Facts

1. The Company is a non-resident corporation whose shares are traded on the XXXXXXXXXX Stock Exchange. Its head office is in XXXXXXXXXX.

2. XXXXXXXXXX.

3. XXXXXXXXXX.

4. XXXXXXXXXX.

5. The Company is also the holding company for a group of approximately XXXXXXXXXX corporations (hereinafter individually referred to as an "Affiliate" and collectively referred to as the "Affiliates"). One of these Affiliates is USCO. USCO deals with the XXXXXXXXXX Tax Services Office and has been assigned the business number XXXXXXXXXX.

6. XXXXXXXXXX.

7. USCO is the only Affiliate with operations or employees in Canada. XXXXXXXXXX.

8. Employees of USCO are generally referred to as "associates". The position occupied by an associate could include any of the following: XXXXXXXXXX.

9. In an effort to encourage associates to increase their knowledge, skills and abilities as they relate to the Company's business, the Company has implemented plans (the "US Plans") whereby associates employed in the United States are partially reimbursed for certain education-related expenses incurred by them in respect of job-related undergraduate and graduate level courses.

10. The Company now wishes to establish similar plans for those associates who are employed in Canada (hereinafter referred to as "Canadian Associates"). These plans will, in all material respects, be the same as the existing U.S. Plans.

PROPOSED TRANSACTION

11. The Company proposes to establish two plans, XXXXXXXXXX (the "Canadian Plans"), pursuant to which Canadian Associates will be eligible to be reimbursed for certain qualifying educational expenses.

12. The plans are to be effective for the XXXXXXXXXX and subsequent calendar years. As with the U.S. Plans, the ongoing administration of the Canadian Plans will be carried out by Services Company.

13. USCO is the only Affiliate that currently has Canadian Associates. Since the Canadian Plans are currently only relevant in respect of USCO's associates, all reimbursements thereunder will be made by USCO. However, the Canadian Plans are also to apply to any Canadian Associates of the Company or any of its Affiliates, should they become employed in Canada. Any reimbursement of qualifying educational expenses to these associates will be made by the Company or the relevant Affiliate.

14. The principal features of the Canadian Plans will be as follows:

General

(a) The Canadian Plans will provide that certain Canadian Associates (the "Eligible Canadian Associates") will be eligible for the partial reimbursement of certain education-related expenses incurred by them ("Educational Assistance") in respect of certain undergraduate and graduate level courses ("Qualifying Courses"); and

(b) No course will qualify for Educational Assistance under the Canadian Plans where:

(i) it provides education that meets a minimum education requirement for a specific employment position with USCO; or

(ii) it leads a Canadian Associate to qualify for a new trade or business or an employment position that is not available at USCO, the Company or one of its Affiliates.

Eligible Canadian Associate

(c) All regular associates of USCO employed in Canada will, subject to the conditions described in (d) and (e) below, be eligible for educational assistance under the Canadian Plans. Canadian Associates on a leave of absence, whether paid or unpaid, will not be an Eligible Canadian Associate;

(d) A Canadian Associate will have to average XXXXXXXXXX or more hours per week of employment with USCO during the period that they are taking the qualifying course; and

(e) A Canadian Associate must have been employed by USCO for at least XXXXXXXXXX by the time the Qualifying Course is completed.

Qualifying Courses

(f) Under the XXXXXXXXXX, Educational Assistance will be provided by USCO for the following types of courses:

(i) career or job-related undergraduate courses taken at an accredited educational institution that relate to an associate's present position or future employment with USCO; or

(ii) degree-related undergraduate courses that relate to an associate's present position or future employment with USCO.

The types of courses or degrees that will qualify for assistance include, for example, computers, psychology, sociology, management, economics, art/design, English or French literature, languages or accounting;

(g) Under the XXXXXXXXXX, Educational Assistance will be provided by USCO for the following types of courses:

(i) graduate-level courses at an accredited educational institution which maintain or improve skills required by an associate's employment with USCO; or

(ii) graduate-level courses at an accredited educational institution which meet the express requirements of the Company, or of any applicable law, imposed as a condition of retaining employment with USCO.

The types of courses or degrees that will qualify for assistance include, for example, an MBA for management-level associates or a design degree for an associate;

(h) In no event will USCO reimburse expenses incurred by an Eligible Canadian Associate in respect of late fees, financing fees, identity card fees, application fees, typing fees, reproduction-type fees, parking fees, transportation fees, fees for audit courses or non-graded courses, refundable fees and deposits, entrance exam fees, graduation fees, medical or other insurance fees and any other expense determined by the Company or USCO as not being covered by the Canadian Plans.

Educational Assistance

(i) The Canadian Plans will provide for reimbursement of XXXXXXXXXX% of any education-related expenses incurred by an Eligible Canadian Associate in respect of Qualifying Courses up to a maximum of $XXXXXXXXXX (CDN) per calendar year;

(j) In general, education-related expenses will include the cost of tuition and required textbooks, as well as activity fees, registration fees and general fees relating to a qualifying course or attendance at an educational institution for the purpose of taking a qualifying course;

(k) The Canadian Plans will not reimburse education-related expenses in respect of a Qualifying Course, unless it has been successfully completed with a grade of "C" (or the equivalent of such grade under the applicable grading scheme) or better;

(l) The Canadian Plans will not reimburse education-related expenses in respect of more than four qualifying courses in any semester or quarter;

(m) A particular Eligible Canadian Associate will not qualify for Educational Assistance unless the associate averages XXXXXXXXXX or more hours of employment with USCO for a reasonable period of time after completion of the qualifying course; and

(n) any Eligible Canadian Associate receiving financial assistance from sources other than USCO will only be entitled to Educational Assistance for XXXXXXXXXX of the difference between the other assistance received and the education-related expenses incurred.

Purpose of the Proposed Transactions

Generally, the Canadian Plans are part of a corporate strategy to build a well-educated and highly productive workforce in order to gain a long-term competitive advantage in the XXXXXXXXXX industry. The immediate purpose of the Canadian Plans is to encourage Eligible Canadian Associates of USCO to further their education, skills and abilities as they relate to their current or future employment responsibilities with USCO. A well-educated and productive workforce will be required if the Company is to be successful in its plans for aggressive expansion into new markets.

Rulings

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and the purpose of the proposed transaction, and provided the proposed transactions are completed in the manner described above, and further provided that there are no other transactions which may be relevant to the rulings requested, our rulings are as follows:

A. For the purposes of computing USCO's income under section 9 of the Act, any amounts paid by USCO to an Eligible Canadian Associate as Educational Assistance in respect of a Qualifying Course pursuant to the Canadian Plans, will be deductible in computing its income or taxable income earned in Canada.

B. No amount will be included in the income of an Eligible Canadian Associate in respect of the Canadian Plans pursuant to subsection 5(1) or section 6 of the Act.

This ruling is given subject to the limitations and qualifications set out in Information Circular 70-6R4 issued by the Canada Customs and Revenue Agency on January 29, 2001, and is binding provided that the Canadian Plans have been commenced by XXXXXXXXXX.

This ruling is based on the Act in its present form and does not take into account any proposed amendments to the Act which, if enacted, could have an effect on the rulings provided herein.

Yours truly,

XXXXXXXXXX
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch