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: The status of benefits derived by employees from a professional development account.
Position: Question of fact.
Reasons: Subsection 5(1) and paragraph 6(1)(a).
XXXXXXXXXX
Randy Hewlett, B. Comm
2004-007126
June 25, 2004
Dear XXXXXXXXXX:
Re: Employee Professional Development Account
We are writing in response to your request for our opinion on the status of benefits derived by employees from a professional development account.
Our understanding of the relevant facts is as follows:
1. The XXXXXXXXXX is an organization that provides XXXXXXXXXX services to XXXXXXXXXX (the "Employers").
2. The Employers formed the XXXXXXXXXX in XXXXXXXXXX to coordinate XXXXXXXXXX services on a provincial basis.
3. The Employers are funded by the XXXXXXXXXX and in turn fund the XXXXXXXXXX.
4. The XXXXXXXXXX negotiates XXXXXXXXXX with XXXXXXXXXX (the "Employees").
5. The XXXXXXXXXX and the XXXXXXXXXX Employees have signed a Memorandum of Understanding that provides for the establishment of a Professional Development Account (the PDA") by the Employers.
6. The PDA is a "notional account" that will be maintained by each Employer in respect of each eligible Employee.
7. An eligible Employee is one who works a minimum of XXXXXXXXXX hours.
8. The PDA provides each eligible Employee with certain entitlements in respect of his/her ongoing professional development.
9. On XXXXXXXXXX, the Employers allocated a notional amount to each eligible Employee's PDA equal to XXXXXXXXXX.
10. An Employee may use his/her PDA for the following professional development initiatives:
a. Time off without loss of pay to attend a course relevant to the Employee's job duties. The Employee will continue to be paid his/her regular pay.
b. Reimbursement of the cost incurred by the Employee for professional licensing fees that are required as a condition of employment. The Employee must submit a receipt to the Employer and is only entitled to reimbursement of licensing fees for one association. Employee membership in voluntary associations is not eligible for reimbursement.
c. Reimbursement of tuition or course registration fees and related travel costs incurred by the Employee for courses that are pre-approved by the Employer and related to the Employee's discipline.
d. Reimbursement of the costs incurred by the Employee to purchase professional journals or publications that are related to the Employee's discipline and pre-approved by the Employer.
11. The allocation of the notional amount to an Employee's PDA will be made on XXXXXXXXXX of each year based on the Employee's basic rate of pay in effect at that time. The notional amount allocated to an Employee's PDA that is not used by XXXXXXXXXX of the following year cannot be carried forward for use in another year. The notional amount in the Employee's PDA will be reduced accordingly upon a payment or reimbursement as described in paragraph 10 above.
12. On termination of employment, the notional amount remaining in an Employee's PDA is lost unless the Employee terminates employment voluntarily and within XXXXXXXXXX months commences employment with the same Employer or with another Employer that is a signatory to the relevant collective agreement.
13. There are two methods being considered by Employers for maintaining the PDAs:
a. Employers will maintain the PDAs through their existing payroll system, or
b. Employers will contract with a third party (the "Third Party") who will charge the Employers a fee for maintaining the PDAs and paying Employees.
You inquired whether under either of the methods being considered by the Employers for maintaining the PDAs, the benefits derived by Employees are employment income under the Income Tax Act (the "Act"), pensionable earnings for purposes of the Canada Pension Plan (the "CPP"), and insurable earnings for purposes of the Employment Insurance Act (the "EIA"). You also inquired as to the withholding and information reporting requirements.
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, 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. However, we are prepared to offer the following comments on each of the initiatives under the PDA as described above.
Time Off With Pay To Attend A Course
Subsection 5(1) of the Act includes in a taxpayer's income for a taxation year from an office or employment, the salary, wages and other remuneration, including gratuities, received by the taxpayer in the year. In our view, where an Employee is paid his/her regular salary while attending a course, the amount paid is taxable employment income pursuant to subsection 5(1) of the Act. The normal withholding and information reporting requirements would apply (i.e., income tax, CPP and EI reported on a T4).
Reimbursement of Professional Licensing Fees
Paragraph 6(1)(a) of the Act includes in a taxpayer's income the value of board, lodging and other 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. Interpretation Bulletin, IT-470R (Consolidated) Employees' Fringe Benefits discusses various common types of "fringe benefits" and indicates whether or not their values should be included in income. As noted in paragraph 47 of IT-470R, the payment of professional membership fees by an employer on behalf of an employee is not a taxable benefit if the employer is the primary beneficiary of the payment. When the professional association is related to an employee's duties, and membership is a requirement of employment, it will be accepted that the employer is the primary beneficiary.
In view of the above, we are of the opinion that a reimbursement of the cost incurred by an Employee for professional licensing fees would not result in a taxable benefit where the licensing is required as a condition of employment. We would note, however, that where the Employer pays for the professional licensing fees, the Employee is not entitled to a deduction in respect of the amount under paragraph 8(1)(i) of the Act.
As noted in paragraph 18 of IT-470R, when training courses are taken for maintenance or upgrading of specific employment-related skills and it is reasonable to assume that the employee will resume his or her employment for a reasonable period of time after completion of the courses, the employer is considered the primary beneficiary of such training and the employee will not be considered to have received a taxable benefit. This treatment would also apply to related costs such as meals, travel and accommodation.
In view of the above, we are of the opinion that a reimbursement by the Employer of tuition or course registration fees and related travel costs incurred by an Employee, would not result in a taxable benefit where the course is related to the Employee's duties and the Employee resumes employment with the Employer after completion of the course. We would note, however, that the Employee is not entitled to claim the tuition tax credit under subsection 118.5(1) of the Act for the reimbursed cost in respect of a course that may otherwise be eligible for the tax credit.
Reimbursement of the Cost of Professional Journals and Publications
In view of our comments on tuition and course registration fees, we are also of the opinion that a reimbursement by the Employer of the costs incurred by an Employee for the purchase of professional journals or publications will not result in a taxable benefit where the items are required for the maintenance or upgrading of employment-related skills.
We trust our comments are of assistance.
Yours truly,
Randy Hewlett, B.Comm.
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch
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