7 June 2004 External T.I. 2004-0066031E5 - Employer Reimbursed Tuition - Taxable Benefit

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: Whether the employer reimbursement of tuition fees is a taxable employment benefit pursuant to paragraph 6(1)(a) when a current employee agrees to remain with the employer who reimbursed the tuition fees for a certain period of time after the completion of the training or degree, or when a new employee obtains employment after the completion of a degree.

Position: Question of fact.

Reasons: Generally, employer paid or reimbursed tuition for courses that primarily benefit the employer will not result in a taxable employment benefit when the employee agrees to continue employment for a reasonable period of time after the completion of the training. However, where an individual commences new employment and is reimbursed for such tuition costs incurred prior to commencing employment, the reimbursement by the new employer is a taxable employment benefit. Such courses are not taken for the maintenance or upgrading of employer-related skills, which is an essential requirement in determining whether the employer is the primary beneficiary of the training.

XXXXXXXXXX 2004-006603
Kathryn McCarthy, CA
June 7, 2004

Dear XXXXXXXXXX:

Re: Employer Reimbursed Tuition - Taxable Benefit

We are writing in response to your letter of March 9, 2004, concerning the above-noted issue.

You described two scenarios in which an employer reimburses an employee's tuition fees. In the first scenario, a current employee agrees to remain with the employer for a certain period of time after the completion of the training or degree. In the second scenario, a new employee obtains employment after the completion of a degree and uses the reimbursement to pay student loans. In each scenario, you inquire whether the employer reimbursement is a taxable employment benefit pursuant to paragraph 6(1)(a) of the Income Tax Act (the Act).

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 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. We are, however, prepared to provide the following general comments.

Generally, paragraph 6(1)(a) of the Act includes in a taxpayer's income the value of benefits of any kind whatever received or enjoyed by the taxpayer in the year in respect of, in the course of, or by virtue of an office or employment. In our view, employer paid or reimbursed tuition that primarily benefits the employee is such a taxable employment benefit. For example, courses of a personal nature or which develop technical skills that are not related to the employer's business are considered to primarily benefit the employee. However, when training is taken primarily for the benefit of the employer, there is no taxable employment benefit related to employer paid or reimbursed tuition. For example, this would include courses in a field related to the employee's current or potential future responsibilities in the employer's business. This may also apply in respect of business related courses not directly related to the employer's business including, for example, courses for stress management, employment equity, first aid and language skills.

Generally, employer paid or reimbursed tuition for courses that primarily benefit the employer will not result in a taxable employment benefit when the employee agrees to continue employment for a reasonable period of time after the completion of the training. However, where an individual commences new employment and is reimbursed for such tuition costs incurred prior to commencing employment, the reimbursement by the new employer is a taxable employment benefit. In our view, such courses are not taken for the maintenance or upgrading of employer-related skills, which is an essential requirement in determining whether the employer is the primary beneficiary of the training.

Finally, it is the employer's responsibility to make the determination of whether or not paid or reimbursed tuition is a taxable employment benefit. Where the employer determines that the paid or reimbursed tuition is non-taxable, supporting documentation should be maintained. For more information on employer paid educational costs, refer to Interpretation Bulletin IT-470R (Consolidated), Employees' Fringe Benefits. The publications described herein are available on our website at www.cra-arc.gc.ca.

We trust our comments will be of assistance to you.

Yours truly,

Randy Hewlett, B. Comm.

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