17 September 2001 External T.I. 2001-0090285 - training 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:

Does adding a doctorate degree in order to enhance book sales and speaking engagement revenue result in a current or capital expenditure?

Position TAKEN
Capital expenditure

Reasons FOR POSITION TAKEN

Enduring benefit obtained from Doctorate degree and increased revenue potential.

XXXXXXXXXX 2001-009028
C. Tremblay

September 17, 2001

Dear XXXXXXXXXX:

Re: Deductibility of training costs

This is in reply to your letter of June 24, 2001, wherein you requested our opinion on a specific fact situation involving one of your clients who is a former teacher and has specialized in the area of discipline. Your client has written two books and carries on the business of book sales and training seminars both as a proprietorship and through his corporation. He now wishes to obtain his doctorate in education from XXXXXXXXXX University for the sole purpose of increasing book sales. In the letter you included from your client, he estimates that the acquisition of this additional degree would allow his speaking fees to be quadrupled and he could also double or triple the revenue from the sale of books and videos.

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R4. However, we are prepared to offer the following general comments.

In our view, the costs and expenses of training, including those for travel, food, and lodging incurred in connection with attending a university to obtain a doctorate degree are not deductible as current expenses. Further to paragraph 2 of Interpretation bulletin IT-357R2, training costs incurred by a taxpayer in connection with a course which he or she takes to obtain a degree, diploma or professional qualification or similar certificate would be considered capital in nature.

It is a question of fact whether or not your client's tuition fees if paid by the corporation are in his capacity as an employee or as a shareholder. In our view, where the tuition fees are included in a shareholder's income by virtue of subsection 15(1) of the Act, the individual may be eligible for the tuition tax credit personally, otherwise, the individual is not entitled to claim the tuition tax credit. A corporate employer may not deduct training costs that have been included in a shareholder's income under subsection 15(1) of the Act.

The foregoing comments represent our general views with respect to the subject matter. As indicated in paragraph 22 of Information Circular 70-6R4, the above comments do not constitute an income tax ruling and accordingly are not binding on the Canada Customs and Revenue Agency.

We trust that our comments are of assistance.

Yours truly,

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