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 free tuition for an employee's dependant, where the employee is working overseas by virtue of his or her employment, is a taxable benefit.
Position: No.
Reasons: There is no economic advantage conferred on the employee.
XXXXXXXXXX Randy Hewlett, B. Comm.
2004-008856
September 17, 2004
Re: Taxable Benefit - Free Tuition For An Employee's Dependant
We are writing in response to your letter of July 26, 2004, wherein you requested that we reconsider the opinion expressed in our letter of June 1, 2004 (file reference 2004-006981).
In the original opinion request, it was indicated that an employee who is a Canadian resident was transferred by his or her employer to a foreign country to work on a contract that the employer has with the government of that country. The employee is sponsored by the foreign government and would not otherwise be allowed to work in the country. The employee's child is not allowed to attend the public school system in the country because all expatriates who work there are required to send their children to private schools. The foreign government designated the private school and directly paid the tuition on behalf of the employee because of the contract with the employer. The employee's child resides with the employee while in attendance at the private school.
You expressed the opinion that the tuition paid by the foreign government is not a taxable benefit for purposes of paragraph 6(1)(a) of the Income Tax Act (the "Act") because there is no economic advantage conferred on the employee and, if the employee were not working in the foreign country, the child would attend a public school system in Canada at no cost to the employee. In support of this view the decision of the Federal Court of Appeal in Louis Guay v. Her Majesty the Queen (1997 DTC 5267) was cited.
In the follow-up request, you asked that we consider the following additional information:
1. The customs and social practices of the foreign country are such that it maintains a "Caste Structure" whereby its citizens in many aspects of their lives are segregated from the "Third Country Nationals" (the "TCNs") who serve them.
2. This Caste Structure includes the custom that the children of their citizens and the children of the TCNs receive completely separate schooling.
3. The foreign government provides full funding from the public purse for the education of its citizens at schools designated solely for their attendance.
4. Where the TCNs are under contract to the foreign government, either directly or indirectly, the foreign government also provides full funding from the public purse for the education of the children of TCNs at schools designated for that purpose. In your original request, these schools were referred to as private schools. You feel it would be more appropriate to refer to them as "quasi public/private schools".
5. Where the TCNs are under contract to the private sector, the foreign government does not provide educational funding. In these circumstances, the employer is typically responsible for the cost of education.
6. As in Canada, there are also truly "private schools" that are not funded by the foreign government. Although these schools are predominately for TCNs, citizens are also permitted to attend provided they personally pay the tuition.
Based on this additional information, you request that we reconsider our position that the free tuition is a taxable benefit for the employee.
The position of the Canada Revenue Agency with respect to the Guay decision is that it will only be applied in situations in which the facts are identical. However, on the basis of all the facts presented above we are in agreement with you that the employee has not received a benefit under paragraph 6(1)(a) of the Act.
We trust our comments are of assistance.
Yours truly,
John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch
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