28 June 1996 Internal T.I. 9617677 - CHARITABLE DONATION FOR PART OF TUITION

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:

WHETHER, IN DETERMINING WHAT PORTION OF TUITION "PAID" CONSTITUTES A DONATION IN ACCORDANCE WITH IC75-23, YOU USE THE AMOUNT ACTUALLY PAID BY AN EMPLOYEE OR THE TOTAL OF AMOUNT ACTUALLY PAID PLUS THE PORTION PAID BY EMPLOYER (OR OTHER) AND INCLUDED IN THE EMPLOYEE'S INCOME UNDER 6(1)(A). ALSO IF SCHOOL FORGIVES TUITION AMOUNT FOR CHILDREN OF CHURCH EMPLOYEES, IS THIS A TAXABLE BENEFIT TO CHURCH EMPLOYEES GIVEN THAT THE SCHOOL IS NOT THE EMPLOYER?

Position:

IF THE AMOUNT FOREGONE OR FORGIVEN BY THE SCHOOL HAS BEEN INCLUDED IN THE EMPLOYEE'S INCOME, THAT AMOUNT IS CONSIDERED TO HAVE BEEN PAID. TUITION FORGIVEN IS INCLUDED IN EMPLOYEE'S INCOME.

Reasons:

Position CONSISTENT WITH THAT FOUND IN T1 GUIDE FOR TUITION TAX CREDIT PURPOSES (SEE ALSO 930085). 6(1)(A) DOES NOT REQUIRE THAT AN EMPLOYER/EMPLOYEE RELATIONSHIP EXIST BETWEEN PAYOR AND PAYEE, SIMPLY THAT BENEFIT BE REC'D "IN RESPECT OF, IN THE COURSE OF, OR BY VIRTUE OF AN OFFICE OR EMPLOYMENT"

								June 28, 1996

	XXXXXXXXXX Tax Services			HEADQUARTERS
	Public Affairs					Sandra Short
(613) 957-8953
	Attention:  XXXXXXXXXX
								961767

Tuition Fees and Charitable Donations

This is in reply to your memorandum dated May 10, 1996, which asks that we provide you with comments in the following situation:

A Christian school operates as a Ministry of a Christian Church in a building owned by, and forming part of, the Church. The school and church have independent management and boards, but are governed at the most senior level by one common Board of Elders. The two entities operate independently, are separate societies, and file separate financial statements.

The Christian school has a policy of reducing the tuition fee charged to its staff to one-half of the fees charged to the general public. This tuition fee reduction has been reported annually as a taxable benefit to each employee. The full tuition fee (amount actually paid plus the amount included in income as a taxable benefit) is used in calculating the charitable donation amount receipted to each employee. The receipted or donation portion of the amount "paid" to attend the school is determined in accordance with Information Circular IC75-23.

The tuition fee reduction has been made available to staff of the church. The method for determining the portion of the fees which qualify as a charitable donation is the same as above. The following questions are asked:

1.Is the reduction in tuition fees given by the school to the church staff a taxable benefit given that these individuals are not employees of the school?

2.Is it appropriate to include the taxable benefit reported when calculating the portion of the amount "paid" which qualifies as a charitable donation?

Our Comments:

We have assumed, for the purposes of our reply, that the school is a dual capacity school providing both secular and religious education, to which the comments in Information Circular 75-23 apply. We respond as follows.

1.The tuition fee reduction is a benefit received by church staff "in respect of, in the course of, or by virtue of an office or employment," as provided in paragraph 6(1)(a) of the Act. There is no necessity that a benefit be received directly from the employer and, indeed, paragraph 6(1)(a) clearly encompasses benefits which may be received from a party other than the employer.

Paragraph 200(2)(g), found in Part II of the Income Tax Regulations, provides that "every person who makes a payment as or on account of, or who confers a benefit or allocates an amount that is,...an amount or benefit the value of which is required by paragraph 6(1)(a),(e) or (h) or subsection 6(9) of the Act to be included in computing a taxpayer's income from an office or employment,...shall make an information return in prescribed form in respect of such payment or benefit." Thus, the school (the person conferring the benefit on the church staff) is required to prepare a T4/T4A information return for each church employee who receives this benefit from the school. It is the Department's policy that, when non-cash benefits are the only income of the employee from the payor, withholding at source is not required unless it is feasible and possible to do so. As a result, unless it can be demonstrated that it is feasible and possible for the school to withhold in these circumstances, the school is not required to submit income tax withholdings from these taxable benefits.

Given the relationship between the school and church, the Department would not object if, administratively, the church, as the party already preparing information returns for each of its employees, were to report the value of the reduced tuition on each employee's T4. In these circumstances, it is likely both feasible and possible for the church to withhold in respect of this benefit.

2.Paragraph 6 of Information Circular IC75-23 provides that, under certain circumstances, receipts for charitable donations may be issued for a portion of an amount "paid" to attend schools, other than post-secondary institutions or designated educational institutions, which operate in the dual capacity of providing both secular and religious education. When an amount has not been "paid" directly to the school, but the value of the free or foregone tuition has been included in income, then the question is whether an amount can be considered to have been "paid."

If the amount foregone or forgiven by the school has been included in the employee's income, that amount is considered to have been effectively "paid" by the employee. This is analogous to the department's position on the availability of the tuition tax credit to a student when the student's tuition has been paid by his or her employer, or by his or her parent's employer. (This position is published under the comments for line 320 of the 1995 general Income Tax Guide and Return.)

John F. Oulton
Section Chief
Business, Property & Personal Section
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

c.c. Donna Walsh, 400 Cumberland, 5th floor.