13 September 2002 External T.I. 2002-0146705 - REIMBURSEMENT OF 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 CCRA.

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

Principal Issues: Whether reimbursement of tuition fees would fall within the guidelines set out in ITTN 13 when the fees are XXXXXXXXXX % reimbursed after the employee has been with the employer for XXXXXXXXXX years following the course, and fully reimbursed after XXXXXXXXXX years. .

Position: Does not fall within guidelines, and would therefore be taxable

Reasons: In order to fall within guidelines, the reimbursement must be made within a reasonably short period of time after the fees are paid. Otherwise, employees would be able to claim the tuition fee tax credit in respect of the tuition fees, and receive the reimbursement tax-free in the future. One of the purposes of the guidelines was to enable employees to be reimbursed on a tax-free basis for tuition fees paid to take employment-related courses, instead of claiming the tuition fee tax credit in respect of those fees.

XXXXXXXXXX Wayne Antle, CGA
2002-014670
September 13, 2002

Dear XXXXXXXXXX:

Re: Reimbursement of Tuition Fees

This is in response to your letter of June 10, 2002, concerning whether the reimbursement of tuition fees by the XXXXXXXXXX (the "employer") for its newly-hired recruits would be considered a taxable employment benefit to the employees.

In your letter and our telephone conversation on September 9, 2002 (Antle/XXXXXXXXXX), you summarized the facts as follows:

The employer sometimes recruits individuals to work as uniformed police constables. When hired, these new recruits are required to attend the XXXXXXXXXX, which charges a tuition fee of $XXXXXXXXXX. The new employees must, by law, complete this training before they can be sworn in as police officers. While the recruits are taking the course, they are paid a salary by the employer. However, the recruits are responsible for paying the required tuition fees to take the training. The XXXXXXXXXX, the governing body for the employer, has approved the reimbursement of these tuition fees in two stages. If the employee is still working for the employer after XXXXXXXXXX years, XXXXXXXXXX% of the fees will be reimbursed. After XXXXXXXXXX years of employment with the employer, the remaining XXXXXXXXXX% will be paid. You have asked:

1. whether this reimbursement would constitute a taxable employment benefit to the employees,

2. whether the tax treatment would change if the reimbursement were included on each employee's pay cheque instead of being paid as a separate cheque to each employee through the accounts payable system, and

3. whether any amount would have to be reported to the Canada Customs and Revenue Agency ("CCRA").

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 income tax ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following general comments, which are not binding on the CCRA.

The tax treatment of employer-paid educational costs is set out in Income Tax Technical News No.13 ("ITTN 13") and paragraphs 18 to 22 of Interpretation Bulletin IT-470R (Consolidated) Employees' Fringe Benefits. Essentially, our position 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. Where specific training is taken by an employee in order to maintain or upgrade the employee's job-related skills, and it is reasonable to conclude that the employee will remain with the employer for a reasonable period of time after completing the course, then the training will generally be considered to primarily benefit the employer. Accordingly, reimbursement of the cost of such courses will generally not constitute a taxable employment benefit to the employee.

One of the purposes of the administrative position outlined above is to allow employees to receive, on a tax-free basis, reimbursements of tuition fees for courses taken to maintain or improve their work-related skills, instead of claiming the tuition fee tax credit in respect of such courses. In order for this position to apply, however, the reimbursement must be received within a reasonably short period of time after the payment of the tuition fees.

With respect to the situation presented in your letter, it is our view that the reimbursement of the tuition fees would not fall within our administrative position on employer-paid educational costs because the reimbursement was not made within a reasonably short period of time after the course was taken. Accordingly, the reimbursement should be included in the employees' income when paid to the employees, and reported on the employees' T4 slips. The tax treatment of the reimbursement is not dependant upon whether it is paid as a separate cheque to each employee, or included on the employee's payroll cheque. The employees would be entitled to claim the tuition fee tax credit with respect to these fees in the year in which the course is taken.

We trust that our comments will be of assistance.

Yours truly

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

- 3 -