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.
Principal Issues: With respect to a status Indian employee whose employment income is tax exempt, how should the following employer-paid amounts be taxed: 1) education assistance 2) maternity/parental leave top-ups to EI benefits
Position: 1) education assistance: some such amounts are not included in income at all. To the extent that such an amount would otherwise be included in income under paragraph 6(1)(a), the amount is taxed in the same manner as the individual's employment income. 2) maternity/parental EI top ups: the amount is taxed in the same manner as the individual's employment income.
Reasons: Consistent with the Indian Act Exemption for Employment Income Guidelines
XXXXXXXXXX Renée Shields
March 17, 2004
Re: Taxation of Benefits Paid to a Status Indian Employee
This is in response to your electronic correspondence of November 17, 2003 inquiring about the taxation of education allowances and maternity/parental leave top-up payments paid to status Indian employees.
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 submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. The following comments are, therefore, of a general nature only and are not binding on the Canada Revenue Agency ("CRA"). All publications referred to herein can be accessed on the CRA website at the following address: http://www.ccra-adrc.gc.ca/tax/technical/incometax/menu-e.html.
The CRA's general views regarding taxation of employer-paid educational costs are contained in Interpretation Bulletin IT-470R, "Employees' Fringe Benefits". You may also wish to refer to Income Tax Technical News 13 and the Employer's Guide - Taxable Benefits (T4130).
Generally speaking, and subject to certain exceptions, paragraph 6(1)(a) of the Income Tax Act (the "Act") requires that a taxpayer include as income from employment the value of any benefit of any kind whatever received or enjoyed by the taxpayer in respect of, in the course of, or by virtue of an office or employment. As noted in ITTN 13, to assist in determining whether employer-paid training assistance is considered to be a taxable employment benefit, three broad categories of training have been identified. They are:
1. Specific Employer-Related Training
Amounts paid for training of this nature are considered to be primarily for the employer's benefit and are not included in income. This category refers to courses taken for maintenance or upgrading of employer-related skill, when it is reasonable to assume that the employee will resume his or her employment for a reasonable period of time after completion of the course(s).
2. General Employment-Related Training
Assistance for other business-related courses, although not directly related to the employer's business is not included in income.
3. Personal Interest Training
If an employer pays for personal interest courses or courses for skills not related to the employer's business, they are considered to be primarily for the employee's benefit and the benefit is included in income.
In the case of status Indian employees, employment income may be tax-exempt if it falls within one of the Indian Act Exemption for Employment Income Guidelines (the "Guidelines"). As noted in the Guidelines, for tax purposes, employment-related income is generally treated the same as the employment income to which it relates. Education assistance which would otherwise be brought into income pursuant to paragraph 6(1)(a) of the Act would be treated in the same manner as the status Indian's employment income received either during that period (for example if someone remains in employment while attending classes), or immediately prior to that period if the individual is on education leave.
Similarly, employment insurance ("EI") benefits and employer "top-ups" to EI maternity/parental benefits are taxed in the same manner as was the employment income to which they relate.
In each of the foregoing situations, if a status Indian employee's employment income is partially tax-exempt then a corresponding proportion of the employment-related benefits would be tax exempt.
We trust that these comments will be of assistance.
Roxane Brazeau-LeBlond, C.A.
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch
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