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. Whether the payments or reimbursements for an employee's tuition fees are deductible by the employer?
2. Whether employer-paid tuition fees are taxable benefits to the employee?
3. Which tax credits are available to an employee for tuition fees?
Position: 1. Normally deductible.
2. Question of fact.
3. Depends on the situation.
Reasons: 1. Payments or reimbursements for an employee's tuition fees which are incurred for business purposes are generally deductible under paragraph 18(1)(a).
2. Question of fact whether primarily for the benefit of the employer or employee.
3. Tax credits available depend on situation.
December 12, 2013
Re: Employer-Paid Tuition
This letter is in response to your April 11, 2013 letter, which we received on August 14, 2013, and our September 4, 2013 telephone conversation (XXXXXXXXXX/Dubis) regarding the payment of tuition fees by your employer.
You stated that you are taking courses at XXXXXXXXXX in order to obtain your CA designation. Your employer has paid the university directly for your tuition fees in the past, but plans to transfer the funds to you so that you can pay the university instead. You would like to know whether the payments or reimbursements for your tuition fees are deductible by your employer and whether there are any formal application forms or procedures that require approval from the Canada Revenue Agency ("CRA") before your employer reimburses you. You would also like to know whether the payments are taxable benefits to you and which tax credits are available to you.
This technical interpretation provides general comments about the provisions of the Income Tax Act ("Act") and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, "Advance Income Tax Rulings."
Tuition Fees Deductible by Employer
Paragraph 18(1)(a) of the Act provides that no outlay or expense is deductible in computing the income of a taxpayer from a business unless it was made or incurred for the purpose of gaining or producing income from the business. The deductibility of any outlay or expense is also subject to the general rule in section 67 of the Act that such amounts be reasonable in the circumstances.
The CRA's general position on the deductibility of training expenses is discussed in Interpretation Bulletin IT-357R2, "Expenses of Training." As stated in paragraph 7 of IT-357R2, an employer may normally deduct the training expenses for an employee, regardless of whether it is the employer or the employee who benefits from the training, provided that such expenses are reasonable in the circumstances. The treatment may be different if an employee is dealing with an employer in a non-arm's-length relationship.
Taxable Benefit to Employee
Under paragraph 6(1)(a) of the Act, an employee is generally taxable on all benefits received or enjoyed by the taxpayer by virtue of employment, subject to certain exceptions specified in the Act. An employer is responsible for determining whether the payment or reimbursement of tuition fees is a taxable benefit to the employee. Guidelines to assist in determining whether training is a taxable benefit to the employee can be found in paragraph 18 of Interpretation Bulletin IT-470R (Consolidated), "Employees' Fringe Benefits," and in the Employers' Guide T4130, "Taxable Benefits and Allowances." The guidelines may not apply in non-arm's-length relationships.
Generally, if the training is primarily for the benefit of the employer, there is no taxable benefit whether or not the training leads to a degree, diploma, or certificate. Non-taxable benefits are not included in an employee's income and not reported on an information slip.
If the training is primarily for the benefit of the employee, there is a taxable benefit. The employer must determine the value of the taxable benefit and report it on a T4 Slip, "Statement of Remuneration Paid." The employer does not need to obtain CRA's approval prior to reimbursing an employee.
Tax Credits Available to Employee
A student who is enrolled in a university in Canada may be able to claim the non-refundable tuition tax credit to reduce tax payable under paragraph 118.5(1)(a) of the Act. Among other exceptions, tuition fees do not qualify for the tuition tax credit if they are paid or reimbursed by the student's employer and are not included in the student's income. For more information about the tuition tax credit, please see Income Tax Folio S1-F2-C2, "Tuition Tax Credit."
A student may also be able to claim the non-refundable education and textbook tax credits under subsections 118.6(2) and 118.6(2.1) of the Act respectively, if certain conditions are met. The student must be enrolled at a designated educational institution either full-time in a qualifying educational program or part-time in a specified educational program.
Generally, a qualifying educational program is a program at a post-secondary school level of at least three consecutive weeks and that provides instruction or work of not less than ten hours per week throughout its duration. A qualifying educational program does not include a program if the student receives, from an arm's length person (for example, an employer) any allowance, benefit, grant, or reimbursement for expenses in respect of the program, other than an amount received as a scholarship, fellowship, bursary, or prize for achievement. If the student's program has been excluded, the student would be disqualified from claiming the education tax credit.
For more information about the education and textbook tax credits, please see Income Tax Folio S1-F2-C1, "Education and Textbook Tax Credits." For more information about scholarships and bursaries, please see Income Tax Folio S1-F2-C3, "Scholarships, Research Grants, and Other Education Assistance." These folios and the other CRA publications are available on our website at www.cra-arc.gc.ca.
We trust our comments will be of assistance.
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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