15 August 1996 External T.I. 9620555 - TAXABILITY OF TUITION REIMBURSEMENTS

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:

1)whether medical residents who are charged a tuition fee for the period of their residency which is subsequently reimbursed by the employer (University) in receipt of a taxable benefit?

2)if in receipt of a taxable income would they be entitled to a tuition and education tax credit

Position:

1)taxable benefit to be included in income whether paid directly by the University or in form of a reimbursement

2) likely eligible for tuition tax credit but not education tax credit.

Reasons:

1)course of study (residency/specialist certification) of primary benefit to the residents. This is comparable to our position on other postgraduate programs pursued while employed and the student is reimbursed for tuition fees, or the tuition is paid directly by the employer

2)tuition tax credit requirements seem to have been met, however since residents are in receipt of employment income in connection with their residency they would not be eligible for the education tax credit
		(see E920906 and 961018)

									962055
XXXXXXXXXX							D. Zion

Attention: XXXXXXXXXX

August 15, 1996

Dear XXXXXXXXXX:

Re: Taxability of Tuition Reimbursements

We are writing in response to your letter of May 22, 1996, to the XXXXXXXXXX Tax Services Office which was referred to us for reply. You have asked for a "non-binding ruling" as to whether, in the circumstances described, the reimbursement of tuition fees by XXXXXXXXXX will represent a taxable benefit.

As discussed in our telephone conversation (Zion/XXXXXXXXXX) of August 8, 1996, your enquiry appears to seek clarification as to the application of the employment benefit rules as they relate to the reimbursement of tuition fees, rather than a request for an advance tax ruling, as described in the Department's information circular on the subject, IC 70-6R2. Our response is therefore being provided on an opinion basis.

As we understand the situation,

XXXXXXXXXX

You are of the view that the payment of these tuition fees by the residents is a condition of their employment and accordingly, the subsequent reimbursement of these fees, or the direct payment thereof, by the University should not give rise to a taxable benefit to the residents. In your letter, you mention the Department's general position concerning the taxability of tuition fee reimbursements and refer to the exception to that position discussed in paragraph 19 of Interpretation Bulletin IT-470R. The presumptions described in that paragraph of the bulletin, while generally applicable when considering these issues, cannot be made in all cases. Courses that lead to degrees or professional designations or certifications, are normally viewed as career enhancing studies of primary benefit to the student even though the employer obviously also benefits during the student's period of employment with that employer.

It is our opinion that the residency programs referred to in your letter will provide primary benefit to the residents by enhancing their overall career opportunities. As a result, any reimbursement, or direct payment, by the University in respect of the tuition fees, are considered a taxable benefit in the hands of the student/employees in the year of receipt. Please note however, that the residents will likely be entitled to a tuition tax credit, provided that they otherwise qualify for the credit. The fees included in calculating the tuition tax credit must be allocated on a calendar year basis; that is, the portion of any fees paid in one year which are in respect of the following year can only be included in calculating the following year's tuition tax credit. This tax credit will offset, to some extent, the additional tax payable as a result of the income inclusion.

While we are of the view that the tuition tax credit will be available to the residents, provided that they otherwise qualify for the credit, we confirm our previous position to which your refer in your letter, that is, that they would not be entitled to an education tax credit whether or not a tuition fee is charged. The education tax credit is only available in respect of a "qualifying educational program" as defined in subsection 118.6(1) of the Income Tax Act. This definition specifically excludes a program of study which is taken in connection with or as part of the duties of the student's employment and the student is receiving compensation for that employment.

In the event that it is determined that an amount has been paid to the students in error, and the student must repay amounts previously treated as employment income, the terms of the agreement, other relevant documents, any court or legal proceedings and all other facts and circumstances involved will be material to deciding the tax issues. The Department would examine all these relevant factors before making a determination. If such a situation arises, you should provide all the relevant documentation to your local tax services office for their review and action.

We trust that this is the information you require.

Yours truly,

J.A. Szeszycki
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch