29 July 2004 External T.I. 2004-0077551E5 - Tuition Fees

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: 1. Does the reduction of the amount of tuition fees paid for children of a teacher of a private school represent a taxable benefit. 2. Salary is foregone in lieu of reduced tuition. Whether the teacher is entitled to a charitable donation tax credit for the foregone salary. 3. Reduced tuition is levied because of the teacher's financial situation. Whether the teacher should be treated in the same manner as other families who receive reduced tuition and are not taxed on the saving.

Position: 1. Yes. 2. Question of fact. 3. Yes.

Reasons: 1. ITA 6(1)(a). 2. The amount of salary foregone would not be considered a charitable donation unless it was included in total employment income on a T4, and then only if it otherwise qualified as a charitable donation. 3. On the basis that the reduced tuition is received because of the teacher's financial situation and not because of the teacher's employment, it should be treated the same for income tax purposes as it is for the other families.

XXXXXXXXXX 2004-007755

Luisa A. Majerus, C.A.

July 29, 2004

Dear XXXXXXXXXX:

Re: Tuition Fees

We are writing in reply to your letter of April 23, 2004, requesting our views on whether a reduction in the amount of tuition fees, payable for children of an employee of a private school, is a taxable benefit for the employee. You are foregoing salary in lieu of reduced tuition and are of the opinion that you should be entitled to a charitable donation tax credit for the foregone salary. Further, you are receiving reduced tuition because of your financial situation and submit that you should be treated in the same manner as other families who receive reduced tuition and are not taxed on the saving.

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 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 general comments.

Employees are generally taxable on the value of all benefits they receive by virtue of their employment pursuant to paragraph 6(1)(a) of the Income Tax Act. The Canada Revenue Agency's general position on the taxable status of employee benefits is discussed in Interpretation Bulletin IT-470R (Consolidated) - Employees' Fringe Benefits. As noted in paragraph 20 of IT-470R, where an educational institution that charges tuition fees provides tuition free of charge or at a reduced amount to an employee of the institution, or to the spouse or children of the employee, the fair market value of the benefit must be included in the employee's income.

In terms of your position that you are foregoing salary in lieu of reduced tuition and therefore should be entitled to a charitable donation tax credit for the foregone salary, we would like to note that the amount of salary foregone would not be considered a charitable donation unless it was included in your total employment income on your T4, and then only if it otherwise qualified as a charitable donation. With respect to your other argument that you are receiving reduced tuition because of your financial situation and therefore should be treated in the same manner as other families who receive reduced tuition, we agree that on the basis that you are receiving the reduced tuition because of your financial situation and not because of your employment, it should be treated the same for income tax purposes as it is for the other families.

The publications described herein are available on our website at www.cra-arc.gc.ca. We trust this information is helpful.

Yours truly,

Randy Hewlett, B.Comm.

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