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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
employee benefit arising from payment of MBA tuition where course was taken at the recommendation of the employer
Position TAKEN:
tuition paid or reimbursed is a taxable benefit
Reasons FOR POSITION TAKEN:
a formal educational degree is a personal asset & thus the
employee derives the primary benefit. The presumption described in IT-470 does not hold even though the employee continues to get salary while at attending classes
960941
XXXXXXXXXX D. Zion
Attention: XXXXXXXXXX
April 25, 1996
Dear XXXXXXXXXX:
Re: Tuition Fees
This is in reply to your correspondence of March 14, 1996 in which you requested verification that the reimbursement by your employer of tuition expenses you incurred in 1995 to complete a Masters Degree in Business Administration ("MBA"), is not a taxable benefit.
You have indicated that you attended university during normal working hours with pay. Furthermore, you indicated that you attended this program on a full-time basis at your employer's initiative in preparation for your new position as general manager of the company.
Generally, pursuant to paragraph 6(1)(a) of the Income Tax Act, the value of benefits received in respect of, in the course of, or by virtue of an office or employment, are included as income unless specifically excepted. In your letter, you refer to an exception to this position, discussed in paragraph 19 of Interpretation Bulletin IT-470R, Employee Fringe Benefits, when the course for which the tuition fees were paid was undertaken on the employer's initiative and for the benefit of the employer rather than the employee. In such cases, the amount paid by the employer as a reimbursement of those fees is not considered to be a taxable benefit to the employee. You are of the view that your circumstances fall within this exception.
It is a question of fact as to whether the employer or employee is the primary beneficiary of the course taken. The presumptions described in paragraph 17 of the bulletin, while generally applicable when considering these issues, cannot be made in all cases. Courses that lead to degrees or professional designations are normally viewed as career enhancing studies of primary benefit to the student, even though the employer obviously also benefits during that student's period of employment with that employer. In our view an MBA Program is of primary benefit to the student, as it represents a means of enhancing one's chances of a promotion in the short term or enhancing one's overall career opportunities in the long run. Since the payment of the tuition fees in these circumstances is determined to be primarily for the employee's benefit, the whole amount of the reimbursement must be included in the employee's income even though the program is taken while the employee is in receipt of salary.
We would mention, however, that the employee will be entitled to a tuition tax credit for the tuition paid by the employer if the tuition otherwise qualifies. This tax credit will offset, to some extent, the additional tax payable as a result of the income inclusion.
I hope that these comments have clarified the Department's position in this matter.
Yours truly,
John F. Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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