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This translation was prepared by Tax Interpretations Inc. The CRA did not issue this document in the language in which it now appears, and is not responsible for any errors in its translation that might impact a reader’s understanding of it or the position(s) taken therein. See also the general Disclaimer below.
Principal Issues: [TaxInterpretations translation] An employee is on educational leave, partially paid by his employer. During the 10-month leave, the employee receives a salary replacement allowance ($15,500) from the employer and an additional amount ($7,000) for tuition fees. What are the non-taxable amounts to the employee?
Position: It appears that training is employment related and may benefit the employer more than the employee. Consequently, if the employee is reimbursed for some of the costs associated with the training, there will be no taxable benefit. However, if the employee receives an allowance instead, he will be taxable under paragraph 6(1)(b) unless it is in fact a reimbursement.
Reasons: In some cases, even if an employer identifies an amount paid as an allowance, it may be clear from the facts that the amount is a reimbursement.
XXXXXXXXXX Martine Filiatrault, CA
2003-003406
April 5, 2004
Dear Sir,
Subject: Education expenses paid by an employer
This is in response to your fax of August 8, 2003, in which you requested our opinion on the above subject. We apologize for the delay in responding to this request.
Facts
Mr. A's employer (the "Employer") granted him study leave to obtain a master's degree from a Canadian university. The study leave will be for a period of 10 months, during which Mr. A will study full-time outside the city where his Employer is located. The subject of his Master's degree is directly related to his employment with the Employer. Under the agreement between Mr. A and the Employer, the Employer will pay an allowance (the "Allowance") of $17,500, as well as $7,000 for tuition reimbursement. However, the Allowance is reduced by a $2,000 scholarship that Mr. A will receive from the Canadian university. In addition, Mr. A agreed in writing, upon completion of his studies, to return to work for a period of time at least equivalent to the duration of his study leave. The Employer's education leave policy provides that the employee may receive, in addition to an Allowance, reimbursement for expenses such as registration, admission, tuition and examination fees, required hardware and software, and certain other fees payable as a condition of enrolment in an educational program.
Question
You wish to know if the educational leave amounts Mr. A receives from the Employer are taxable to Mr. A.
Our Comments
The situation described in your request appears to us to be an actual situation and, as stated in paragraph 22 of Information Circular 70-6R5 dated May 17, 2002, the Directorate does not generally give a written opinion on proposed transactions otherwise than by way of an advance ruling. Furthermore, the determination of whether a completed transaction has received appropriate tax treatment is a matter for the Tax Services Offices. However, we can offer the following general comments. These comments may not, however, apply fully to your particular situation.
In determining the amounts to be included in computing income from an office or employment, paragraph 6(1)(a) of the Income Tax Act (the "Act") provides that an employee must include the value of any benefits "received or enjoyed by the taxpayer in the year in respect of, in the course of, or by virtue of an office or employment” unless the exceptions listed in subparagraphs 6(1)(a)(i) to (v) apply. In addition, paragraph 6(1)(b) provides for the inclusion of amounts "received by the taxpayer in the year as an allowance for personal or living expenses or as an allowance for any other purpose” except in the situations listed in subparagraphs 6(1)(b)(i) to (ix) or subsection 6(6) or 81(3.1). The term "allowance" is not defined in the Act. However, an allowance is generally considered to be an amount that an employee receives from the individual’s employer, in addition to salary, and for which the employee does not have to account for its use.
In the case of education expenses paid by an employer, the Canada Revenue Agency ("CRA") has established guidelines in this regard in relation to employment benefits. These guidelines are found in paragraph 18 of Interpretation Bulletin IT-470R(Consolidated), Employee Benefits. Thus, "when training is taken primarily for the benefit of the employer, there is no taxable benefit” to the employee when the training expenses are reimbursed. Reimbursement may relate to tuition fees for degree, license or certificate courses, but also to other costs associated with such training such as meals, travel and accommodation. Based on the information provided to us, the training taken by Mr. A could be considered specific training related to the Employer's business that is taken for the benefit of the Employer. Thus, the $7,000 that Mr. A receives from his employer to reimburse Mr. A for a portion of the tuition, fees and books associated with his training would not be taxable to Mr. A.
In addition to the $7,000 reimbursement, we understand that Mr. A receives $15,500 which the employer identifies as an allowance. Generally, an allowance is not considered a reimbursement by an employer for specific expenses incurred by an employee. The guidelines set out above do not apply to an allowance paid by an employer. Consequently, the allowance received by Mr. A would normally be taxable pursuant to paragraph 6(1)(b). However, even if the employer uses the term "allowance" to refer to the payment made to an employee, it is possible that in some cases the allowance may be a reimbursement of expenses. Consequently, if it can be shown in this situation that the Allowance is, for example, based on an estimate of the travel and accommodation costs that the Employee will incur during the training period, or that Mr. A must show the Employer how the Allowance was spent, then it may be that the Allowance is more of an expense reimbursement and not a taxable allowance pursuant to paragraph 6(1)(b). In this case, given that, on the facts, the training appears to be primarily for the benefit of the Employer, the $15,500 Allowance may be non-taxable to Mr. A.
However, we would like to point out that it is the employer's ultimate responsibility to determine, in each case, whether the amounts it pays to an employee for education-related expenses are taxable or not to the employee.
These comments are not advance income tax rulings and, as stated in paragraph 22 of Information Circular 70-6R5, are not binding on the CRA in any particular case.
Best regards,
Ghislaine Landry, CGA
Manager
Individuals, Business and Partnerships Section
Business and Partnerships Division
Income Tax Rulings Directorate
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